American Business in Georgia: A Short Journey to the Past
It was the early to mid- 1990s and American investors were among the very first international investors to commit to Georgia. For example, there was former US Secretary of State James Baker, who invested in a winery and AES the giant US power company that privatized the power distribution in Tbilisi and invested about 300 million USD into the country.
There were smaller US investments at that time as well – businesses like Betsy’s Hotel, founded by Betsy Haskell; an entity that became a small westernized island of peace in the turbulent ocean of the 90s in Georgia.
The business climate at that time was quite challenging, and investors were facing various problems that ranged from criminality, harassment by the tax authorities, to betrayal by untrustworthy local partners.
At the time, the US Embassy consisted of a very small staff and they were busy most of the time tackling the problems that US businesses were having in the country.
In 1998, Ken Yallowitz arrived to Georgia as the newly-appointed US ambassador.
Ken was pragmatic, rational and business friendly; he was aware of the pressure that the authorities were exerting on foreign investors and he understood very well that there would be no chance for Georgia to develop and move forward without serious foreign investment. And for that, it would be necessary to secure a workable environment for foreign businessmen.
Georgian businessmen had their own way of solving their problems – by using their personal or family connections as a tool of leverage over the country’s decision makers. However, foreign business people had no such recourse, and their only two choices were either to partner with a Georgian businessman with all the associated risks that come with it, or to operate on their own and be racketeered by the criminal world and later thrown out of the country.
Since Georgia’s independence, the list of foreign businesses defrauded by their local partner was growing larger by the day, and Georgia had gained a very bad reputation within foreign investor circles.
Of course there were some successful partnerships between foreigners and locals, but they were an exception rather than the norm back then.
Ambassador Yallowitz was well aware of the problems that my own company had faced with the government back in April that year, and he was wondering how to provide foreign investors some tools to protect their interests while doing business in Georgia.
The US embassy used to organize business roundtables once a month at the embassy; the attendees included American businessmen and US companies operating in the country. During those roundtables, major problems facing business were discussed and this allowed the embassy staff to better understand what was going on in the country.
I attended the September 1998 roundtable at the embassy and when the meeting wrapped-up, Ambassador Yallowitz invited me to his office.
“Fady, I need to talk to you about an important matter. I have followed up on your problems here and, unfortunately, you’re not the only company facing such troubles; the embassy is solicited on a daily basis to troubleshoot problems that the few American investors are facing. I have an idea and want you to tell me what you think of it. Why don’t you establish an American Chamber of Commerce (AmCham) in Georgia? There are about thirty or forty US businesses operating in the country; if we have an AmCham in country then, in addition to the embassy, there will be a second voice to lobby US businesses and protect their interests,” he told me.
It’s is a great idea, I told him. I believe that an AmCham in Georgia is badly needed, not only for American businesses, but for all foreign business people operating in the country.
“Perfect, then start working on it! I will talk to Leigh Durland the President of Absolute Bank and ask him to coordinate with you,” he told me.
AmCham was established in November 1998.Its main goal was to protect its members from harassment and other unlawful actions, and to strive towards the improvement of the business environment. The first General Assembly was held in February 1999 at the Sheraton Metechi Palace Hotel, at which I was elected president. I had the honor to assume this role for eight consecutive years.
With the change in power at the end of 2003, the Saakashvili administration focused on curbing both criminality and corruption, and Georgia started climbing very quickly up the rankings of the International Financial Institutions. Finally Georgia was no longer a harbor for criminals, and it became a focal point for investors from various countries of the world.
Although the business climate had improved dramatically, some businesses were still targeted and pressured for one reason or another, usually through intimidation by the tax authorities.
Unfortunately, we still see some of these kinds of cases today. As a matter of fact, a mining company, one of the largest US investments ever in Georgia, has been subjected to unjustified harassment by the Revenue Service for a couple of years now. The reason? It is rumored that “someone” wants to take over their business.
Of course those cases have become extremely rare, but they still cast a very long shadow over the country’s business climate.
In order to forecast their activities and expansion plans well ahead of time, businesses need stability, predictability and visibility.
Changes to the country’s legislation should only be made after careful assessment and thorough discussions with the private sector. In addition, legislative changes should be announced well ahead of time, before being implemented.
With an average of 3% GDP growth per year, Georgia will need 25 years to reach the current GDP of Turkey and Romania and more than 50 years to reach the current GDP level of Western European countries.
Therefore every new piece of legislation should be weighed against its impact on GDP growth and adopted or rejected accordingly. Georgia should focus on a double-digit economic growth, as anything less than that will keep the country in poverty for decades.
The appointment of Giorgi Kvirikashvili as Prime Minister in December 2015 gave the business community in Georgia a new influx of optimism. If some businesses and investors were still hesitant before the October 2016 parliamentary elections, they now feel the full commitment from the business community to go forward with their expansion plans.
Prime Minister Kvirikashvili fully understands business and enjoys the unconditional trust and respect of the business community. He keeps his door open to anyone and is attentive to any suggestion that could help move business forward.
I feel very optimistic about the future of the country. As a matter of fact, I can’t recall the last time I felt this optimistic about things – it’s been years. My prediction is that the golden period for Georgian business is starting right now.