Georgia’s Justice Minister Tea Tsulukiani is interviewed on Georgian television.
In October 2012, Georgia’s parliamentary elections resulted in the unseating of the incumbent United National Movement party by the opposition coalition, Georgia Dream, with 55 percent of the vote. In the wake of the post-Saakashvili era, the newly elected government is working tirelessly to define the priorities for democratic reform, governance, and rule of law.
Speaking at the Carnegie Endowment for International Peace in Washington, DC on February 22, Georgia’s newly appointed Minister of Justice Tea Tsulukiani — previously a renowned human rights lawyer — outlined her agenda for judicial reform. Throughout her speech, transparency, accountability, and impartiality were stressed as cross-cutting themes for reform initiatives.
Three key reforms highlighted by Tsulukiani included: universal free access to laws and penal codes; inclusion of civil society and the private sector in the drafting of new legislation; and strengthening the position of the defendant before a judge in the criminal procedure code.
This attention to democratic reform of the judiciary was warmly welcomed by many, as Georgia’s judicial system is perceived as highly corrupt with little to no independence from the regime. It is nearly impossible for ordinary citizens to win a court case against the state – the acquittal rate in Georgia is a miniscule 0.01 percent. This stark statistic comes into the light when you consider the fact that there are 300 state prosecutors, yet only 33 defense investigators. What this means is that judges are provided overwhelmingly with evidence for the prosecution, rather than a balanced argument.
(Photo: The Telegraph)
Elissa Myers is the president and CEO of Advice & Consensus. She is serving as a mentor for the Georgian Small and Medium Enterprise Association through CIPE’s Knowhow Mentorship program.
When I was offered the opportunity to serve as a mentor to the Georgian Small and Medium Enterprises Association through CIPE’s KnowHow program, I jumped at it. Earlier I spent a couple of months in the Republic of Georgia, working with two other emerging associations, and fell in love with the country, its history, its culture, its people, and its potential.
Strategically located between Asia and Europe, with Turkey, Armenia, and Azerbaijan to the south, the Caucasus Mountains to the north, and with glorious port towns bordering on the Black Sea to the west, Georgia represents an important opportunity for international investment. It’s a country poised to blossom as an important market partner, but to do so a stronger internal business community is needed. Under the leadership of Kakha Kokhreidze, President CEO of the GSMEA, that community is gaining strength.
As Georgia and Russia move from the battlefield to the negotiating table, there is hope that Georgians soon may be able to put the messy incident behind them and get on with their daily lives. However, a study conducted by the Association of Young Economists of Georgia (AYEG) points to a particular issue that may hinder Georgia’s return to normalcy – the war’s effect on the country’s tourism industry.
The study, which AYEG conducted as part of a CIPE-supported project, focused on the conflict’s impact on the Georgian business environment. AYEG asked representatives of 1,000 businesses of all sizes what effect the conflict had on their ability to conduct business and on their plans for the future.
Among the key findings of the study was that that, while most industries reported decreased demand and trouble securing loans, the tourism sector was particularly hard-hit. Of tourism-related businesses surveyed, 45% reported a decrease in sales of 81-100%, compared with 10% of manufacturers and 15% of service providers. Respondents from the tourism industry were also relatively pessimistic about their ability to recover quickly. Only 5% of tourism-related businesses believed that the recovery period could take fewer than three months, while 21% of manufacturers and 15% of service providers believed the recovery could be accomplished in that time frame.
While tourism is not among Georgia’s top industries, it has grown rapidly in recent years and thus represents an important factor in the country’s overall development. According to UN data, tourism in Georgia grew from $97 million to $313 million from 2000-2006. Fallout from the conflict with Russia has the potential to reverse this trend.
This article in Transitions Online details the harsh impact the conflict had on Georgia’s resort operators. On August 7, the day the conflict began, the port city of Ajara hosted 34,000 vacationers, most of who understandably fled. Instead of travelers with fat wallets, guesthouse owners found themselves hosting Georgian civilians displaced by war. In all, Ajara’s tourist industry suffered losses of around 6 million lari (more than $4 million), which equals its total revenue from 2007. Georgia must now find a way to reestablish its image as a welcoming destination of unique culture and beautiful landscapes, rather than a land racked by violence and separatism.
Georgia dropped almost sixty spots in the latest media freedom report by Reporters Without Borders – going down from the 66th to the 120th place in the rankings. This could be one the larger drops in one year that the index has seen.
The conflict with Russia is mentioned as a key reason for Georgia’s poor performance in the report. It certainly contributed to the fall with the dangers to journalists in conflicts, but restrictions placed on media in Georgia have not helped either and, perhaps, have been the driving force. For example, when anti-government demonstrations were sweeping the country last year, the president simply shut down the independent media.
Earlier this month, this NY Times article painted a bleak picture of media freedom in Georgia. An ombudsman for human rights, for example, notes a gap between laws on paper and what the government actually does in regards to media freedom:
We have some of the best freedom-of-expression laws in the world, but in practice, the government is so afraid of criticism that it has felt compelled to raid media offices and to intimidate journalists and bash their equipment.
Another interesting trend highlighted in the report is that bloggers are targeted as much as journalists in the traditional media.
You can view the index here.
There are many guidelines on attracting investment. There are very few on doing the opposite. But if you are indeed willing to drive away investors from your own market, you can follow these simple steps:
Step 1: Undermine rule of law by selectively nationalizing companies of oligarchs through tax inspections and other financial levers (Yukos). Have your colleagues and trusted friends fill the vacancies in the private and state-owned companies made though these actions.
Step 2: Revoke contracts with major foreign firms over concerns about the environment, and then turn over the same projects to a domestic firm (Shell).
Step 3: Threaten joint ventures between international firms and domestic companies (TNK-BP). Raid the offices of the largest foreign portfolio investor in your country and, to make your point even more clear, deny visas to the fund managers (Hermitage Capital).
Step 4: When a domestic company honors contract prices it has established with foreign firms while charging higher market prices to domestic companies without such contracts, threaten the company with charges of tax evasion (Mechel). This will send the shares of the company, which is listed on foreign stock exchanges plummeting, but this way it will be cheaper to buy in the long run.
Step 5: Refuse to adhere to the clauses in the treaty that stopped the war in the smaller neighboring country. Make inflammatory statements, like the territorial integrity of another nation no longer exists or your ready for a new cold war.
Step 6: Respond to the foreign policy fallout from a military conflict by withdrawing from negotiations to enter the WTO. Who needs an international framework of rules governing trade anyway?
Now you can just sit back and watch investors’ flee and reconsider future investments in your country all while your domestic market falters in response to increasing political risk.
In an increasingly globalized world when two countries pick a fight with one another the rest will suffer in some way. While I am not suggesting that pressures on supply chains and the oil market can ever be equated with the horrors of war, the fact remains that when two modern national economies pick a fight with one another the effects will be felt worldwide.
Georgia seems to be the more economically damaged of the two countries thus far. Its credit rating has recently been reduced from a B+ to a B by the ratings agency Standard and Poor’s (S&P) immediately after the start of the conflict. An economy that has been averaging 10 percent growth for the past few years also faces high inflation and a much smaller growth in GDP this year. Also, oil and gas companies that were beginning to think of the Caucuses as an alternative route from the Caspian to Western markets are having serious second thoughts about billions of dollars of investments.
On the Russian side of the conflict, foreign investors were already feeling the pressure from Prime Minister Putin when he recently decided to attack the coal company Mechel for “tax evasion”. Russia will have to deal primarily with its image problem and the severe political damage that has the potential to send foreign money running. Europe, which has already invested heavily in alternative energy sources, will likely re-double their efforts in an attempt to wean themselves off Russian oil and gas.
Perhaps the most unsettling outcome of this conflict is the end to Thomas Friedman’s Golden Arches theory of conflict resolution, which stated that no two countries with a McDonald’s have ever gone to war with one another. It seems the Ronald is not the statesman he once was.