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Kakha Bendukidze Chooses Open Market Principle Over Anti-Monopoly Service

Published: November 26, 2012 | 11:18 am
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“Creation of a Competition Agency could be an option.”

The COMMERCIAL TIMES

The bill on antimonopoly service is expected be presented at Georgia’s legislative body by the end of the year. After the elections the leader of the winner Georgian Dream Coalition Bidzina Ivanishvili started intensive works on restoring the antimonopoly service. As Ivanishvili was saying, the creation of this body is essential in order to prevent cartel agreements and don’t let government officials interfere in anybody’s property issues illegally. The government’s praised idea is again disapproved by the Former Minister of Economic Development of Georgia Kakha Bendukidze, the initiator of the abolishment of the anti-monopoly service.

- One of the main issues prioritized by the new government is the launch of an anti-monopoly service. Your negative view on this subject is no secret. According to your earlier statements, there is no use in establishing anti-monopoly service in Georgia as no monopolies exits in the country. Moreover, you used to say that this is an unreasonable expenditure and a constant corruption source. Do you see the necessity of creating this body in Georgia today?

- First, I’d like to stress that this even this term- antimonopoly service- is not used in today’s world. The terms used instead maybe- competition assistance, etc. I was the initiator of abolishing anti-monopoly service in Georgia. I believe I was right. All the rumors that were spread around the local monopolies, for instance, oil monopolies, shows that monopolies emerge where government allows it. Government assists monopolies develop either legally by forbidding the existence of competitor companies or by illegal actions of high government officials. When there’s no interference or no limitations exist, talking about monopolies is nonsense. So, if monopolies are supported by the government, I don’t see the use of launching anti-monopoly service against itself. For solving disputes we have Prosecutor’s Office and the Ministry of Internal Affairs and no special additional body is necessary.

Competition scheme is simple, it consists of three pillars. First, it is goods and what we need here is an open market, which is actually successfully achieved in Georgia and if there are some barriers we should fight for solving the issues instead of urging businesses to regulate prices. Open market principle is the best solution here. According to the assessments made by one of the Swiss universities, Georgia occupies 30th place in terms of economic globalization worldwide. A number of developed countries are ahead of us on this listing, however, for instance, Australia is behind us and this is because our country has made unprecedented steps during the past 9 years in regards to open market direction. One of the best examples to name is the pharmaceutical market, where we did face legislative barriers, which made medicine import complicated. In autumn, 2009 amendments were made to the law and as a result medicine import was increased ten times. One of the world’s biggest pharmaceutical companies founded a warehouse in Tbilisi, the fact that there are no exclusive distributors now has influenced much on the price of medicines. Thus, it’s essential to stick to the open market principle. The creation of a Competition Agency could be an option.

Second, it is service. We do not forbid global developed institutions to provide services in Georgia. The local market is small and the interest could be not that big, but market is open here too. What’s most important, game rules- how to sell services- must be simple. Market entrance barriers have to be lowered to minimum. For instance, let’s speak about a drug store, where we deal with medicament services.  In 2004 if you were intended to open a drug store where everything could be sold, the first category outlet, it had to be spread on 240 sq.m. Can you imagine a drug store to be this large? First amendments to this law were made in 2005, followed by further changes in 2007 and 2009. Today it’s far easier to open a drug store. It’s true for restaurants as well. There are countries where it’s almost impossible to open a restaurant as it requires lots of licenses, even from other restaurants confirming that you won’t be a threat to the competition. For instance, in Italy it’s a restaurant association, which should approve and say that you will not disturb them. Thus, just like the above-mentioned goods case, anti-monopoly service can do nothing here as well. When government sets certain limitations, the solution lies in changing the law.

Third, it is natural monopolies. This includes the fields where the number of companies is naturally limited, for instance, electricity and gas distributor companies. For such cases we have regulatory commissions, which are granted the power of so called anti-monopoly functions. However, I would support more competition in these fields. When back in 2003 Telasi was sold, the sales agreement included the chapter making it the exclusive electricity distributor in Tbilisi till the feedback coefficient would be high. Today the feedback coefficient is high already and others could also compete for electricity distribution in Tbilisi, which would make this field more competitive. However, Georgian National Energy and Water Supply Regulatory Commission is not authorized to regulate this issue. Anyway, open market principle works best in all directions.

- How would you assess the efficiency of anti-monopoly services in other countries?

- International experience shows that anti-monopoly service is not good but it’s even bad. Why? For instance, let’s take the U.S example. Long ego they started to regulate the railway and set very small- 3% profit margin. Then it became clear that building a railway would not bring much revenue. This caused monopoly situation converse. The main concept of the economy is the market signal. When I see a concrete filed looks promising I try to put money in this field. Price control makes it uninteresting. There is also the other field- gas distribution, which in Europe and in our country is considered as monopoly and in the U.S it is not. In the United States there’s a competition and there have 5 times more pipelines there.

Let’s say I decide to monopolize thones’ (Georgian bread bakery) market and you-  anti-monopoly service tell me the thone should have 5% profit. I don’t think anyone else will be willing to start thone business. If others see that the business is profitable only then they get engaged in any venture. We have lots of example in Georgia of opening new pharmaceuticals, communication companies, etc. Today, four mobile operators and several internet providers are presented in our country. There’s no market economy without competition.  You don’t need a certain body taking care of competition, what you need is the right approach that will let you remain competitive.

- Which country model would work for Georgia in case the launch of the anti-monopoly service is inevitable?

 

- The right model for Georgia is the one that exists in the country currently. However, if it’s a necessity for someone, not for me, the Spanish model would be more appropriate where it is a more court procedure and not an administrative dispute.

 

- Lately we see strikes at different companies in Georgia, also IDPs occupying various buildings, which could be an instability gesture to investors. What’s your evaluation of the situation?

- I don’t see a positive side of these events. Still, I hope that the government will clear this up. Georgian economy is much depended on foreign investments and if this volume is not around 1 billion annually we won’t have an economic growth. When we have 7% growth this year this means that it’s positive throughout the whole country but if the growth was 2% it would not be equall everywhere and this would cause catastrophe.

 

- What’s your view on Georgian production return to the Russian market? Wine in particular?

- We must understand that this may cause Georgian wine falsification in Russia. There are regulative and semi-regulative plants in that country, which will start pouring Georgian wines right away. I cannot image how this can be fought.

- Do you think that return on the Russian market could be a compromise?

- Compromise from our side? No. I think Georgian production will not return on the Russian market yet. Even Moldova, did not manage this, however looked more expectable. The country should work on this issue because Russia is a big market of population counting 140 million. Still, nobody should have an illusion that this will happen soon. I wish all the best to Zurab Abashidze, I know him as a very honest person. There were signs earlier as well creating the hope the Russian market was about to open for Georgian production, but all in vain. Yet, it does not mean to stop working on this direction. It’s not about winemakers only, the entire Russian market must be opened for Georgian production.

 

 

 

 

 

 

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