Guest Contributor: Jon Erikson is a writer based in Tbilisi, Georgia. His experience consists of consulting for clients in the public and private sectors.
Dateline: Valencia, Spain
Most of the fifteen post-Soviet countries are graveyards when it comes to private sector growth. Russia, Azerbaijan, and Kazakhstan depend on state-dominated natural resource extraction to provide most of their wealth. Ukraine, Armenia, Kyrgyzstan, and Moldova have gulped toxic cocktails of war, domestic instability, and corruption. Economic success stories are few outside of the Baltic trio.
Then, there’s Georgia.
During the 1990s, this small, South Caucasus republic was on the path toward suffering the same fate as many of its post-Soviet neighbors. Above all, war and corruption hampered the new leadership’s efforts at building a functioning market economy. Fortunately, the 2003 Rose Revolution put a fresher, more market-orientated political class in the saddle.
Georgia’s private sector soon began taking off.
Foreigners who live and work in Tbilisi, or the Black Sea port of Batumi, can’t help but be impressed by the new construction projects and business ventures that sprout up seemingly everywhere. Just a few years ago, getting a decent restaurant meal in Tbilisi was an ordeal. Today, you can’t step outside without absorbing the hustle and bustle of a city and country on the rise.
The 2016 edition of the World Bank’s Doing Business survey provides some tangible support for feelings of optimism.
The 2016 report actually singled out Georgia for making the most impressive economic improvement of any country since 2003. GDP per capita has risen by 66 percent over the past 12 years. Plus, annual business density — defined by the number of newly registered businesses per 1,000 people ages 15-64 — tripled over the same period.
Georgia has made immense progress since 2003, but the country isn’t resting on its laurels. It came in 24th in the world on ease of doing business, with the three Baltic states being the only post-Soviet countries to score higher. What’s more, it topped business-friendly locales such as Poland, The Netherlands, and Switzerland (with far lower production and living costs, to boot).
Georgia’s one of the easiest places for doing business
Specific sectors in which Georgia performed especially well were ease of starting a business (#6 in the world; by contrast, the United States came in at #49) and ease of registering property (#3 in the world behind only New Zealand and Lithuania). It scored seventh on ease of getting credit and thirteenth on enforcing contracts.
In Georgia, it famously takes only two days to register a new business (there are only two procedures and the standard registration fee is only 100 GEL, or about $40). The absolute score on this issue was near perfect: 97.76 out of 100.
Furthermore, government-implemented reforms over the past two years have made doing business in Tbilisi and other parts of Georgia even easier.
Georgia got kudos for introducing an electronic filing system for commercial court claims. Filing online — bypassing the shuffling back-and-forth through the Byzantine web of offices and agencies you find in many other countries — means that claims are more easily filed with lower costs and a quicker processing time.
Georgia also made steps toward better protection of the rights of minority investors. They now score 20th in the world (68.33 out of 100, against the average in Europe and Central Asia of 61.87).
Georgia’s reform on issuing permits for new construction projects is also worth noting. In 2015 the official wait time to receive a decision on a permit application was halved from 10 days to five. This will undoubtedly give a boost to already strong property markets in Tbilisi and the Black Sea coast.
Success in Perspective
It might sound hard to believe, but Georgia’s star performance in the latest addition of Doing Business is, in comparison with past editions, not particularly impressive. The country received the same rank it did in the 2015 report. However, it’s overall score of 77.45 out of 100 was an improvement from the year before (and significantly higher than the Europe and Central Asia average of 69.82).
Georgia’s highest ranking came in 2013, when it scored eighth. Before you start wondering whether Georgia’s current government isn’t as business-friendly as you’ve been led to believe, think again.
Georgia may have fallen behind some other countries, but that doesn’t mean that it’s performance has decreased. Rather, it means that more developing countries around the world are implementing pro-business policies — or at least policies that look good according to the World Bank’s criteria. As mentioned, its absolute score in 2016 was an improvement over the previous two years.
Still, there is room for improvement. Georgia didn’t do so well on trading across borders (#78, although the government shouldn’t really be faulted for its dicey relationship with Russia) or on paying taxes (#40). While Georgia has only five taxes and its rates are very low, it still needs to make progress toward easing the process of filing and paying.
Why You Should Start an Offshore Company in Georgia
Georgia’s business-friendly approach to governance has made it a popular destination for foreign direct investment of all sorts. The combination of streamlined regulations, minimal bureaucratic red tape, a flat tax regime, and low costs for labor and other production inputs makes it a lucrative business destination, especially for those making investments in the service industry.
Georgia has no minimum capital requirement for registering a business and no restrictions on the purchase of land by non-citizens. Those looking to start a business of any size can look forward to fertile ground. Best of all, large-scale improvements over the past 12 years have not made the authorities complacent.
In fact, the World Bank expects Georgia’s GDP to grow by 4.5 percent in 2017 and 5 percent in 2018. Both numbers are significantly higher than the global projection. Expect Georgia’s business environment to continue to improve in the future.