Georgia Matters
Carnegie Endowment for International
Peace
March 23, 2009
Why does Georgia Matter?
Geopolitics
Values
Reforms
A Small But Important Country
Most eastern point of the west
Being the boundary
between West and East,
Georgia has been an target
of geopolitical struggle of
•Persians
•Byzantines
•Arabs
•Mongols
•Ottomans
•Russians
Latest War with Russia
August, 2008
• 228 Civilians and 160 Militaries killed, 110 000 persons
displaced
• Civil damage  1 billion USD (8% of GDP)
A Small But Important Country
RUSSIA
BELARUS
KAZAKHSTAN
UKRAINE
UZBEKISTAN
GEORGIA
AZERBAIJAN
ARMENIA
TURKMENISTAN
TURKEY
SYRIA
IRAQ
IRAN
KYRGYZSTAN
CHINA
TAJIKISTAN
PAKISTAN
AFGHANISTAN
INDIA
Access to Central Asia from the West
Russian control of Georgia means
RUSSIA
BELARUS
KAZAKHSTAN
UKRAINE
UZBEKISTAN
GEORGIA
AZERBAIJAN
ARMENIA
TURKMENISTAN
TURKEY
SYRIA
IRAQ
IRAN
KYRGYZSTAN
TAJIKISTAN
PAKISTAN
AFGHANISTAN
INDIA
CHINA
Values Turned into Institutions
• Georgian reforms and institution-building were
based on our values - Freedom, Openness,
Rule of Law, Human Rights,Tolerance.
• That means transforming soviet style institutions,
putting citizen’s choice in the focus and servicing
him, creating a system where merit matters…
• The system proved to be resilient to constant
challenges – Russian embargo, Russian gas
price hiking, Russian war.
How did Georgia make it?
Simple reforms leading to significant outcomes
Example:Reforming Bureaucracy
• Number of ministries (1814) and public
agencies (5234) reduced
• Number of public servants halved
• Salaries of civil servants increased app. 15fold
• One-stop-shops almost everywhere
How did Georgia make it?
Simple reforms leading to significant outcomes
Example: Business Registration
• Registration
– business and tax registration merged into one simple process
– Time requirements reduced (30 days  1 hour)
– Paper work reduced (documents 7  2 documents)
– Costs reduced (costs 2160 GEL  160 GEL)
Annual Business Entry
250,000
200,000
As a result
150,000
100,000
50,000
0
2003
2004
2005
2006
2007
How did Georgia make it?
Simple reforms leading to significant outcomes
Example: Opening Borders
to the developed and secure countries
Visa policy before the reform
– Visa application procedure - shortest one month for
all countries (going in person to rare consulates)
– Visa-free entry only for the citizens of CIS countries
– 3 different durations of visas - 3 month, 6 month, 12
month
– Standard - single entry visa
– Exception - multiple entry visa
10
How did Georgia make it?
Simple reforms leading to significant outcomes
Example: Opening Borders
to the developed and secure countries
Visa policy after the reform
• 3 different entry regimes
 Free entry - no visa required for the citizens of 56 countries (free stay up to
360 days)
 Simplified visa procedures - getting visa on the border
 Restricted entry for citizens of countries suspected in terrorism and human
trafficking
• Flexible visa regulations
 Standard – 1 year, exception 5 year visa
 Standard – multiple entry visa
• No legal restrictions on ownership/business for foreigners
11
And many other reforms
Reform of Financial Sector – restrictions on foreign ownership of banks, on capital account transactions, on entry of sound international banks abolished. Tax Reform – number of
taxes dramatically reduced, tax rates significantly lowered, special tax regimes adopted. Trade – customs tariff dramatically reduced, effective rate below 0,26%, non-tariff barriers
abolished, as a result international trade significantly increased. Public sector reform - increased salaries (15 fold), increased motivation, reduced number of civil servants, young,
qualified professionals attracted. Judicial reform - 126 well-trained judges appointed on the basis of rigorous interviews; Unified Certification Exam for judges, lawyers and
prosecutors; High School of Justice established; Increased efficiency of the court process, speedier trials and full protections of the rights of accused; clear separation of first and
second instances; Salaries and pensions for judges increased; increased independence of courts – life-time appointment introduced; conflicts of interest eliminated - minister of justice
and parliament no longer appoint permanent member of the Council; clear discipline procedures for judges; whistleblower protection - right to claim compensation for monetary and
moral damages if their rights are violated due to their decision to disclose particular Information; Criminal justice reform - increased oversight of the Prosecutor's office over the
preliminary investigations avoid violating human rights; the limit on pre trial detentions reduced from 9 months to 4 months, the limit on trial detention reduced from 24 months to 12
months; defendant has right: (i) to invite 2 people to witness any investigative actions or searches, (ii) to conduct a private investigation. Licenses and Permits – number of licenses and
permits dramatically reduced, one-stop-shop principle and silence is consent principles introduced. paper-work and time-requirements slashed. Prevention of Torture and Inhumane
Treatment - criminal sanctions for acts of torture and inhumane treatment increased, different oversight mechanisms used, TV cameras in the prisons, law enforcers are obliged to file
a report, including a description of a detainee's physical condition upon the arrest, the suspects can use their own recording equipment during interrogation; the Optional Protocol of
the Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment is ratified; the Office of the Prosecutor General was downsized by more than 40%,
salaries raised dramatically, hence incentive for corruption reduced; increased transparency - Prosecutor's Office no longer supervises the penitentiary system; within the Interior
Ministry, Prosecutor's Office and Prisons' Departments human rights departments established staffed by former representatives of NGOs; Human Rights Protection Unit established
at the Prosecutor's Office; within the department of prisons the Office of Prisoners' Rights Protection established; the persons authorized by the Public Defender have unlimited access
to any pre-trial detention facilities. Penitentiary System Reform - organized crime leaders were separated from other prisoners, housed in maximum security facilities, they no more
receive special treatments or unauthorized benefits, new prisons are built, expenditures for food, hygiene and medical care significantly increased; the tuberculosis screening programs
are conducted permanently; relevant enforcement agents are equipped with special protective gear and rubber bullets, use of which should be avoided as much as possible; the libraries
are equipped with better resources, including newspaper subscriptions. Public Institutions – several Ministries and many Public Agencies abolished, including state anti-monopoly
service and state price inspection; Anti-corruption activities - anti-corruption strategy and action plan developed, in compliance with international standards - recommendations from
GRECO; legislative groundwork created for extensive reforms that institutionalize fight against corruption. As a result, corruption significantly reduced: according to BEEPs, bribe
frequency decreased 5 times; bribe tax frequency decreased 5,5 times; frequency of bribery in tax administration decreased 3,3 times; frequency of bribery for business licensing and
permits decreased 4 times. Procedures of business and property registration simplified - one stop shop principle and silence is consent principle introduced; business and tax
registration merged in one simple procedure; number of document needed and time requirements dramatically reduced, as a result annual business entry significantly increased;
founder/partner obligations towards creditors changed; terms and procedures for partnership inputs made clear; Bankruptcy and foreclosure – procedures of closing a business
dramatically simplified. Privatization – private incentive employed wherever possible, sea port privatized, main assets for generating and distribution of electricity privatized, gas
distribution companies privatized, international airport transferred with long-term contract, natural resources and forests given out for long-term. Labor Market – simplified
relationship between employees and employers, costs of hiring and firing significantly reduced. Education – school-choice system introduced, state funding of students instead of
schools, hence competition between schools created/intensified. Healthcare – state funding of patients instead of hospitals, hence competition between hospitals introduced/intensified.
Land reform - privatization of state owned agriculture land; effective privatization methods introduced; 0% of property tax on small plots of land (less than 5 ha); 0% property tax on
property transaction; 0% of profit tax; 0% VAT on primary supply of agricultural products; 0% of import duty on agricultural equipment. Energy Sector – new capacities
deregulated, diversified policy of import, regulation on wholesale prices abolished. Transport – transit fees, quotas and other barriers abolished, railway tariff policy liberalized, “open
sky” policy implemented. Food security reform - the concept of reform based on the principle of informative choice - well protected consumers rights; the general principles of the
reform: identification of potential risks and prevention; regulation of companies for the purpose of food security; methods of food security defined; control system of risks created
within companies; high and low risk group of food production separated and effective method of state control introduced; aspects related to food quality defined; the food companies
separated on the basis of potential risks. Water resource management reform - concept of water, basin management concept developed, permitting system of water abstraction and
waste water discharge in place; concept includes the principles of river basin management - terms and conditions enabling the river basins to be transferred in a long term use, contains
principles based on which water prices differ, concept gives well defined rights and responsibilities of supervisory bodies. Protection of rights on private property - property amnesty,
legalization of buildings with construction procedures violation. Sport infrastructure reform - from state owned sport centers to multi-profile private sport complex, hence competition
enhanced and management improved. Agriculture Sector Development reform - aims to enhance entrepreneurship in villages and to increase locally produced product export, thus
reduce unemployment and poverty at villages, Opening Borders – simplified visa procedures for secure countries and etc…
• And
Inward FDI Performance Index
Hong Kong, China
Bulgaria
Iceland
Malta
Bahamas
Jordan
Singapore
Estonia
Georgia
Lebanon
Guyana
Bahrein
Belgium
Gambia
Panama
Mongolia
Tajikistan
Cyprus
Moldova
Egypt
As a Result
12
23
34
45
5
67
67
Economic Freedom Index, 2008
8
89
9
2007
USA
UK
Estonia
GEORGIA
Latvia
Hungary
France
Bulgaria
Italy
Romania
Turkey
Kazakhstan
Azerbaijan
Ukraine
Russia
2006
15
10 13
11
20
12
10 13
11 14
15 16
16 19
1718
18
19
20
24
27
5
10
12
32
38
43
48
59
64
68
74
76
107
133
134
31
Source: The Heritage Foundation
Source: UNCTAD
Bertelsmann Transformation Index, 2008
Estonia
Latvia
Lithuania
Georgia
Ukraine
Armenia
Kazakhstan
Kyrgyzstan
Moldova
Tajikistan
Russia
Azerbaijan
Belarus
Uzbekistan
Turkmenistan
2
10
17
23
55
56
76
77
Source: Bertelsmann Stiftung , 2008 (Rank out of 125 countries)
87
88
98
99
110
117
121
The Best Countries for Business
Hong Kong
Ireland
Estonia
Turkey
Lithuania
Poland
Litva
Georgia
Azerbaijan
Armenia
Russia
9
2
Source: Forbes
14
10 17
32
33
30
41
42
43
45
2009
2007
6468
82 87
63
13
86
94
103
ALL RESULTED
Rapid Growth
GDP
Nominal GDP (US$bn)
Net FDI as % of GDP, ‘07
Real GDP growth, y-o-y (%)
Source: Department of Statistics of Georgia, Ministry of Finance of Georgia
Source: National Bank of Georgia, International Monetary Fund
4%
3%
3%
3%
2%
2%
Italy
Armenia
Netherlands
Brazil
6%
France
20%
Other
UK
Netherlands
France
Turkmenistan
Other
Norway
Japan
Azerbaijan
France
Germany
USA
Kazakhstan
Russia
UK
United
Arab
Turkey
Cyprus
5% 4% 4% 4%
Canada
6% 6%
Italy
9%
Armenia
12%
8% 7% 7%
6%
Bulgaria
Foreign Trade by country, 2003
Foreign Trade = 40% of GDP
China
United Arab
Emirates
15%
Czech
Virgin I's
(UK)
Denmark
Netherlands
FDI by country, 2003
FDI = 8,5% of GDP
USA
3%
9%
Russia
3%
Other
7%
Germany
5%
Japan
11%
Ukraine
5%
Norway
11%
Azerbaijan
5%
Italy
France
Turkey
Austria
6% 5%
Turkey
7%
Turkmenistan
China
8%
Other
7%
Germany
7%
Australia
9%
USA
Azerbaijan
21%
Azerbaijan
UK
Russia
USA
13%
Ukraine
UK
Turkey
Russia
ALL RESULTED
Dynamics of FDI and of Foreign Trade of Goods
FDI by country, 2007
FDI = 19,8% of GDP
15%
7%
3% 2% 2%
2% 2%
Foreign Trade by country, 2008
Foreign Trade = 59% of GDP
22%
16%
11% 10%
5% 4% 4%
3% 3% 2% 2% 2% 2% 2% 2%
ALL RESULTED
Rapid Growth of Foreign Trade
Foreign Trade of Goods, US$ mln.
Foreign Trade of Services, US$ mln.
7 000
7000
6 000
6000
5 000
5000
4 000
4000
3 000
3000
2 000
2000
1 000
1000
0
0
2003
2004
Export
2005
Import
2006
Total
2007
2003
2004
2005
Export Import
Total Foreign Trade, US$ mln.
9 000
8 000
7 000
6 000
5 000
4 000
3 000
2 000
1 000
0
2003
Source: Department of Statistics of Georgia
2004
2005
Export
Import
2006
Total
2007
2006
Total
2007
Therefore, Georgia Matters
Because Georgia:
• Shows that values are good for
development and reforms can lead to
significant outcomes
• Plays central role in connecting East to
West
RUSSIA
BELARUS
KAZAKHSTAN
UKRAINE
UZBEKISTAN
GEORGIA
AZERBAIJAN
ARMENIA
TURKMENISTAN
TURKEY
SYRIA
IRAQ
IRAN
KYRGYZSTAN
TAJIKISTAN
PAKISTAN
AFGHANISTAN
INDIA
CHINA
RUSSIA
BELARUS
KAZAKHSTAN
UKRAINE
UZBEKISTAN
GEORGIA
AZERBAIJAN
ARMENIA
TURKMENISTAN
TURKEY
SYRIA
IRAQ
IRAN
KYRGYZSTAN
TAJIKISTAN
PAKISTAN
AFGHANISTAN
INDIA
CHINA
your choice