Molly Corso in Tbilisi -

A new amendment prohibiting foreigners from owning agriculture land in Georgia is sending shock waves through the foreign business community. While the Georgian Ministry of Agriculture has denied the measure will adversely affect investors, lawyers and legal watchdogs warn the change will harm investment in the country.

Passed by the Georgian Dream-controlled parliament in June, the amendments seek to circumvent a 2012 Constitutional Court decision that opened up land to foreigners by banning them from ownership until 2014. Previous to the ruling, foreigners could only own land in Georgia if they were part of a Georgian-related business.

While members of parliament have argued the measure is a temporary change designed to give the government the chance to determine how much agriculture land is now in foreign hands - and what investors are doing with it - critics believe it could torpedo development in sectors spanning from farming to energy.

The change, which prohibits foreigners from owning, inheriting or buying agriculture land in Georgia, has widely been seen as an uneven-handed attempt to quell rural concerns over the number of Indian immigrants purchasing Georgian farmland.

A wave of foreign farmers from India and other countries have purchased agriculture land in Georgia over the past year, building on the former government's experiment to settle Boer farmers from South Africa to Georgia to invest in the land and improve local crop management.

Lawmakers have denied there is any xenophobic element to the changes, stressing that the amendment is intended to give the government time to analyse the extent of foreign investment in Georgian agriculture land and to develop a land cadastral system. The timing of the changes and the lack of consultation with the business community before the amendment was passed have raised concerns, however.

Mathias Huter, an analyst for Transparency International Georgia, notes that the nature of the amendment - which was passed quickly, against a background of media reports about tensions between Indian farmers and local communities in rural farming villages - raises questions about the parliament's intent. "One problem that I see is that this law was passed very quickly, without really wider consultations and one could claim that it might be an initiative that is connected with the presidential elections - that the presence of foreign investors, especially maybe those with non-white skin in some of the villages," he says.

Pavle Mgeladze, a spokesperson for the Ministry of Agriculture, stresses to bne that the change is merely a temporary measure to give the government time to design a policy that protects the rights of foreigners and the local community. He notes that land ownership is a very "sensitive" issue in Georgia and that many farmers - even if they are not currently cultivating the land - do not want to see it cultivated by foreigners.

Mgeladze says the government is considering allowing foreigners to take out long-term leases on land instead of allowing direct purchases. The problem today, he notes, is that the government does not know how many hectares have been sold to foreigners over the past few years.

Leased

Huter and Transparency International Georgia have formally asked the Constitutional Court to overturn the new amendment as a violation of the court's previous decision, but it could take several years for the judges to issue a decision.

In the meantime, however, some investors are concerned the amendment will adversely impact a struggling part of the economy. Agriculture, once an engine for the Georgian economy, has dropped below 10% of the country's GDP even though 46.8% of the population still live in rural communities.

Ketti Kvartskhava, a partner at BLC Law Office in Tbilisi, stresses that the amendments could have wide, unforeseen implications for investors. She says that even though the amendments are not retroactive - foreign investors who currently own agriculture land will not lose it under these changes - it means they cannot expand their holdings, sell their land, or even pass it on as inheritance. The changes also complicate changing land status, so when investors need land for energy projects or any other type of development, they cannot purchase agriculture land unless the owner agrees to change its status prior to the sale. "It is much bigger [than just agricultural land], the implication is much bigger," she says.

However, Mgeladze points out that there is no indication the change has impacted investment in agriculture since it was put into force on July 19.

He adds that the government does not want foreign investors to be put off by this temporary change because "they are important" to the economy. "If an investor is really interested to come to Georgia, he or she can come to us and we will find a way to [work with them]," he says.

Some investors, like the Norwegian Clean Energy Group, have already taken the government up on that offer. Tornike Rijvadze, the company's legal counsel in Georgia, tells bne the company received assurances the government would work with it to obtain land. "[The] amendments theoretically may delay the process of land acquisition but overall it doesn't prejudice our legitimate expectations," he sats. "Therefore, the confidence is remarkable and we are committed to achieve our project development goals though one of the biggest FDI in the renewable energy projects in Georgia."

Kvartskhava warns, however, that investors looking in from abroad may receive a different message. "Parliament has to clearly analysis what is the purpose of the law. If the purpose of the law is to, not to allow foreign investment in agriculture, this is the right way to do it. That is what they are accomplishing with this law," she says.