Georgia no longer at front of US mind

By bne IntelliNews July 15, 2010

Samantha Shields in Tbilisi -

US Secretary of State Hillary Clinton sought to calm Georgian nerves and assure President Mikheil Saakashvili his country is still high on the US list of priorities in a short visit to Tbilisi at the end of her Eastern European tour in July.

But the shift in the geopolitical landscape caused by the US "reset policy" on relations with Russia and Georgia's struggle to tempt back the foreign investors it lost during the war with Russia and global economic crisis mean the country's star as a bastion of reform and growth has dimmed since its glory days following 2003's Rose Revolution.

"The United States is steadfast in its commitment to Georgia's sovereignty and territorial integrity," Clinton said at a joint press conference with Saakashvili.

Earlier at a meeting of women leaders she made the first of several condemnatory references to Russia's actions during and after the August 2008 war over the breakaway region of South Ossetia. "You live with the realities of an invasion and an ongoing occupation. You are trying to promote a recovery in Georgia's economy."

Saakashvili welcomed the tough language on Russia and said that despite initial worries, the reset policy now looked to be the best way forward to encourage a more modern Russia. A short walkabout with Clinton ended with a champagne toast and there were smiles all round. "Georgia as a full-fledged, optimistic country is back. And despite the occupation, we have robust and meaningful economic growth," Saakashvili declared.

Yet this time there was no public speech from Clinton to thousands of cheering Georgians, like the one that marked former President George W. Bush's 2005 trip to Georgia, in which he referred to the country as "a beacon of liberty" and inspired Saakashvili to rename the road from the airport to the centre of Tbilisi George W. Bush Highway. And before she flew back to Washington, Clinton had a meeting with two key opposition figures, in which she promised to allocate more money to support democratization in the country.

New faces

Back in 2005, Saakashvili was riding high on the wave of democratic fervour that had brought him to power. Georgian GDP growth was just shy of 10% and $0.5bn in foreign direct investment (FDI) had flowed into the country on the back of a strong reform and anti-corruption drive that made Georgia a good investment bet in a region characterised by cronyism and opaque business dealings. By 2007, annual growth had risen to 12.4% and FDI to over $2bn.

Since then, the war and global crisis have taken their toll on economic growth and FDI flows. Although this year's GDP forecast is for 4.5% growth, after the economy shrank 3.9% last year, FDI in the first quarter fell 42% on year to a paltry $75.7m. Prime Minister Nika Gilauri has just removed his second economic development minister in a year for failing to attract the level of investment needed to push growth higher. He said in a statement that he hoped this one would run the ministry successfully for "many years."

The new minister in question, 28-year-old Vera Kobalia, has lived in Canada for the past 15 years and returned to Georgia five months ago. Just like her predecessors, she has been told to increase the inflow of investments and speed up the pace of privatization. At her first press conference in July, she announced a contest to find a tourism development plan. Georgia has long sought to attract investors to this potentially money-spinning sector, but while a few Western-style few hotels have opened in Tbilisi, mountain and beach resorts in the rest of the country are woefully underserved.

This year's foreign investment target figure is $800m, says Vato Lezhava, chief advisor to the prime minister. Last year's total was $759.1m, down almost 50% on 2008. "The favourable investment conditions are still there in terms of low corruption and low taxes, we just need to reach out," he says.

Political instability has also played a role in denting investor confidence. Protestors demanding that Saakashvili resign camped on the streets in makeshift jail cells for months last summer. Lezhava said one reason first-quarter FDI was low was because of fears that May's municipal elections, which passed peacefully, would lead to fresh protests.

Clinton urged the government and the opposition not to fall into a situation where they spend all their time jostling for power, and said a growing economy and democracy go hand-in-hand. "When you look at Georgia's economy, when you look at the consolidation of democracy, it is very impressive... But there are still shortcomings. We want to urge Georgia to continue the work of the Rose Revolution," she said.

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