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EBRD President is Certain that the Georgia will Successfully Pass the Democracy Test in October

Published: July 26, 2013 | 12:20 pm
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The President of the European Bank for Reconstruction and Development has given an exclusive interview to TV3. In it, Sir Suma Chakrabarti describes Georgia as the flagship of democracy in the region, and opines that October’s presidential elections will not affect the business in the country. Mr. Chakrabarti is certain that the country will successfully pass the democracy test in October.
- What is your assessment of the state of Georgian economy? Eight months have passed since the change in government. How do you assess their work? What has changed for the better, and where do you still see problems?
- I think we all know by now that the Georgian economy will need to grow faster. We have predicted a 3% growth rate for this year, and next year it can accelerate to 6%. The key issue facing the government, the EBRD, and other investors, is what to invest in, in order to get the economy growing again. The government now has a set of priorities, while we have a new strategy for the country, which comes into force in September. As I told the Prime Minister myself, the government now needs to set out, within the next 6 months, a clear recovery and growth plan for the next few years. We will help the Prime Minister with this task. He has agreed to it.
- Is Georgia attractive for investors?
- I think that Georgia is naturally quite attractive for investors. It has been rising in the World Bank’s ‘ease of doing business index,’ is now 9th in that table, so in that respect, it is in a good shape. Of course, it can and will do more to attract investment. I think what foreign investors are looking for, is to have a clearer understanding of where the current government is going in terms of its priorities and its plans. For me, that is the key action to be taken now.
- The economic growth forecast for Georgia has been downgraded by you and other financial institutions. What are your expectations for the second half of the financial year, and for next year?
- This year, we expect a 3% growth, but that requires quite a bit of acceleration during the second half of the year. While the first half of the year was stagnant, the second half has seen the opening up of the Russian market, which is a very important factor. Getting the investment levels up, as the government becomes clearer about its priorities, will also be crucial.
However, Georgians should not get too depressed about the growth rate of 3%, as it is not a bad achievement in today’s world. In other parts of Eastern Europe, the growth rate is much lower, and in Western Europe, it is lower still. Nevertheless, achieving a 6% growth next year will be a key task.
- What is your opinion about the financial team in the Georgian government?
- Like with any new team, it takes time for them to gel, to discuss their priorities, and then to translate them into actions. I think they’re doing a good job in that respect. It will take some time to put these actions into place, but I think that they have the ability to be successful.
- How do you assess the government’s economic policies? Can the Georgian economy carry projects such as ‘Cheap Agricultural Loans’ and ‘Universal Health Insurance’?
- As many people both here and abroad will agree, Universal Health Insurance is very important, and it is a good policy to go with. As for the Cheap Agricultural Loans, experiences from around the world show that they only work if they are well targeted, and commercially viable. This should not be a social policy alone, but an economic tool as well.
- Which aspects of Georgian business would you find attractive enough to invest in them?
- Our new country strategy outlines three themes: first of all, the small and medium-scale enterprises (the SMEs). For Georgia, the SMEs are very important for bringing the growth rate back up. Finding the right SMEs at the right point in the business cycle, and investing in them, will be a key part of what we will do. We will push for more local currency lending. For the first time, we plan to issue a bond in the local currency later this year.
The second theme concerns the natural resources. Georgia does not have a lot of oil and gas, but it has water in the mountains, and it must turn it to its advantage through hydro-projects, and through exporting electricity regionally. We will provide help in this aspect as well.
Thirdly, Georgia can and should become even more of an economic regional harbour. It can do that by improving its logistics, infrastructure, and energy policies. These are the three themes that we will focus on during the coming years.
- Which projects will EBRD continue to operate in Georgia, and are there plans for any kind of new partnerships?
- The future projects will be in those three areas which I have just talked about. We are very private sector-orientated, and therefore cannot provide a full list of projects in advance, as is the norm in the public sector. Many of our projects are of a commercial nature, where we trust and rely upon our commercial partners.
However, the aforementioned three areas are where we would expect to see most of our new projects in: the hydro-electric sector; more financing of the SMEs through banks; and projects that are important for regional development, to establish Georgia as a regional economic hub.
- How is the business environment affected by the upcoming presidential elections in October?
- Georgia is a beacon of democracy. It already had successful elections and changes in government, which are key parts of the democratic process. It takes time for the new administration to set out its plans, and that’s what is happening in Georgia, in my opinion. The presidential elections will be the next point in this democratic renewal process. After these elections, we will need to have greater clarity about the government’s priorities.
- The Georgian Prime Minister has initiated the creation of several Investment Funds. Do you think that the Prime Minister himself, and other big financial groups, put money into one of these funds, and go into partnership with the investors?
- We will need to wait and see. It is still unclear to me, what these funds will focus on, how they will be structured, what the balance will be between public and private sector investments, and what the corporate governance of these funds will look like. Similarly, it is still unclear, what the role of the Prime Minister and other Ministers in these funds will be. We do know a little bit more about the Investment Funds now, but we have told the Prime Minister that we will need to see these ideas develop into something concrete over the next couple of months – something that we can react to.

By Sandro Vephkvadze

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