In times of economic and political turmoil, providing the right legal and security environment for businesses to invest and grow is more important than ever. But over the last few years, the climate in and around Georgia, a key hub between the East and West, has become increasingly hostile, with private interests and Russian influence creeping in. Elections approach this weekend, amid tensions across Eastern Europe, which makes it vital to keep them at bay.
Back in 2008 and 2009, I twice worked in Georgia on behalf of the UN and OSCE following the conflict with Russia, and saw very clearly the damage that could be done by a neighbour with malign interests. From both a Georgian and Western perspective, trade with Georgia is about more than just business: a serious level of international investment makes it harder for Russia to encroach any further on Georgian sovereignty, as it has already done in South Ossetia and Abkhazia. The more countries have a vested interest in Georgia’s stability, the more protected it is from unwanted attention.
It is not clear why Georgian politicians would choose to undermine their own country’s position, both economically and geopolitically. In recent years they have sabotaged the Anaklia Deep Sea Port project, the oil and gas company Frontera, and the real estate developer Iconia Capital among others. All of them were important international infrastructure investments worth billions, which should have confirmed Georgia's position as an international hub. Russian pressure is suspected behind at least some of these breaches of contract.
These latest developments do come as something of a surprise, given the positive growth of the country in the last decade and a half. In a region otherwise marked by corruption and political instability, it is widely considered a more inspiring story. In 15 years, the country has shot up 90 places in the Corruption Perceptions Index and the World Bank now ranks it seventh in Ease of Doing Business.
While Georgia’s per capita GDP remains modest at 107th, its 5.3 per cent growth as of last year places it significantly higher than any EU country or the US, which sits at a mere 1.8 per cent. Foreign direct investment (FDI) represents the core of this growth, highlighting the increasing international recognition of Georgia’s key location as a junction between the West and Asia which bypasses Russia.
For all its importance as a hub though, it still only ranks 118th in the World Bank's Logistics Performance Index. It’s no surprise then that investors have come from around the world to develop the country’s infrastructure and transform it to its full potential. But they are already being put off by increasing uncertainty in the market.
The highlight of this trend was a new law passed in July, which now allows the government in Tbilisi to insert its own representatives into electronic communication companies in order to control and effectively nationalise them. A further draft law is set to give intelligence services access to any data held by telecommunications companies. These steps have been condemned both by the companies concerned and by local NGOs campaigning for media freedom. Ironically, the Georgian National Communications Commission, which is behind the move, was granted EU funding a few years ago to help bring it into line with European standards.
Despite widespread opposition, the law has already been applied in the case of Caucasus Online, part of a project by the international infrastructure investor Neqsol to build a massive carbon fibre network through the country, linking East and West through a digital hub in Georgia. Having failed to push the company to sign over its investment to Georgian businesses, the government has now taken effective control of it through an administrator.
These apparently arbitrary approaches to desperately needed international infrastructure investments raises serious questions about Georgia as a place of doing business. Whether or not Russian influence is to blame, it creates a highly uncertain environment. At a time when all countries are in need of economic recovery, this is counterproductive to say the least. Georgian FDI in the first quarter of 2020 was already down over 40 per cent year-on-year, with a noticeably negative trend since 2017.
Similar worries are reflected in the European Parliament’s resolution of 16 September on its Association Agreement with Georgia, as well as reports of recent conversations between Georgian representatives and the US State Department. While praising progress, both raised major concerns about the rule of law, the need for structural reforms to improve the investment climate, and the threat of Russian influence.
A country in which investors might expect at any time to be expropriated or deal with increasing Russian influence does not provide the kind of secure environment that encourages long term growth. The spectre of Russian intervention in Nagorno-Karabakh, ongoing tensions in Belarus and recent meddling in the Montenegrin and North Macedonian elections certainly show that the Bear still has its claws in its neighbours. While potential investors look to develop new markets in the aftermath of the pandemic and Brexit, Georgia’s potential is at risk.
- Brett Lovegrove is Chairman of the Defence and Security Committee in the London Chamber of Commerce and Industry and Chief Executive of the City Security and Resilience Network (CSARN). He was previously Head of Counter Terrorism for the City of London Police
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