Something is not ringing true about Georgia’s placing in the World Bank’s latest Doing Business Survey. Last November, it was announced that the country had climbed three places to rank sixth out of 190 economies in the ranking, with excellent positions in sub-categories including Protecting minority investors and Enforcing contracts. But in the early months of 2019, more and more businesses in the small Caucasus nation have been talking about the gathering of dark clouds.
Two negative developments stand out.
Firstly, there are deep-seated suspicions about who stands to benefit from Georgia’s London-listed TBC Bank coming under investigation for “activities [that] clearly showed the characteristics of legalization of illegal income, i.e. money laundering, and other illicit acts” (see statement from the Office of the Prosecutor General of Georgia). The bank’s affiliate TBC Holding is leading a consortium in developing Georgia’s flagship infrastructure project, Anaklia deep sea port on the Black Sea, designed to be a focal point of trade between Europe, Central Asia and China. If TBC is damaged by official investigations, it doesn’t take too much to imagine how other investors might try to move in on the project.
Worrying list that is “tip of iceberg”
The second dark cloud now obscuring Georgia’s ‘blue sky’ business environment is a list issued this week of companies said to have been damaged or bankrupted by targeted actions conducted by Georgian state entities. Published by Fady Asly, chairman of the country’s International Chamber of Commerce (ICC), as reported by InterPressNews (IPN), it is said by the ICC to represent the “tip of an iceberg”. Names on the list include Philip Morris, British American Tobacco, American Georgian Alloys, Terabank, KazTransGas, InterRao, City Park, Batumi Port, Optical Systems Inc, Samih Habib Investments, Caucasus I Fund and Anka Food Switzerland.
It is Asly who has also very publicly posed the big question of who will end up finishing the potentially very lucrative Anaklia port project. TBC bank co-founder and shareholder Mamuka Khazaradze remains engaged in trying to clear his name and that of his bank in the wake of the announced laundering investigation and plenty of business people in Georgia would wager that the tycoon sometimes seen as the de facto leader of Georgia, the country’s richest person Bidzina Ivanishvili, might not too long from now be boasting a stake in Anaklia.
Asly, a Lebanese businessman based in Georgia, has constantly taken a neutral position on the country’s politics. He has noted that if Khazaradze finds himself discredited by the suspect lending affair—and he is fiercely protesting his innocence, claiming a plot against him—he might become unable to receive funds from donors.
Asly described the events surrounding TBC Bank as “an assault on business” and said that similar scenarios were characteristic of former Georgian president Eduard Shevardnadze's rule. “There is a more general trend in Georgia against foreign investors,” he added.
"In 2018, direct foreign investment was 25% less than in 2017 and this was the result of government policies. Bidzina Ivanishvili does not want to see foreign investors. He does not want competition. It's very dangerous for the country. Only Bidzina Ivanishvili's friends come here," Asly said to journalists.
TBC’s Anaklia performance criticised
In the same week that Asly raised his concerns, Georgian authorities criticised TBC’s performance in completing Anaklia port project. Such criticism could well be followed by attempts of the authorities to “help” the project by direct involvement.
Irakli Garibashvili, political secretary of the ruling party led by ex-PM Ivanishvili, Georgian Dream, said that “when it comes to Anaklia Port, the first question I have is—three years have passed, as I remember they [TBC Holding] won the tender in 2016. Why is the timeline not respected, why is the port not being built? Was there some problem with getting the financing on time? Or maybe simply it was not a bankable project. I do not know, experts shall look into that. […] Three years have passed, is the port built? I am asking, is it built? No.”
After the ICC released its list of impacted companies, Batumi Oil terminal, controlled by Kazakh state company KazMunayGas, put out its own comment, defending the business climate in Georgia.
The country's business climate, legislation, liberal tax policy and range of transparent communication formats for addressing public agencies can definitely be seen as creating a favourable environment for business, according to Batumi Oil Terminal director General Murat Jimadilaev, as quoted by IPN.
Independent business and political environment analyst Khatuna Lagazidze remarked that one of the main achievements of Georgian Dream in power was that business enjoyed freedom—but she stressed that if it does not last, “the ‘Dream’ will end”.
According to Lagazidze, the fact that business people in Georgia were openly speaking about their difficulties and were expressing their complaints about the government indicated that there was not a situation in the country that could be assessed as amounting to massive pressure on business.
Respond or face “large rock rolling down mountain”
Lagazidze called on the government to respond to the recent disquiet expressed by the business representatives. "I think the individual statements, which we have heard from the businessmen, should not be left without a response from Georgian Dream. If the ‘Dream’ does not react to their statements, the principle that can be seen as a large rock rolling down from the mountain will be initiated. If the image of the ‘Dream’—business breathing freely under its power—disappears, the ‘Dream’ will also be finished,” she said.
More criticism related to poor governance in Georgia has been expressed recently.
“The greatest threat to countries like Georgia, Moldova and Ukraine lies in their own poor governance and abuse of informal power,” a comment piece published in Politico in February observed.
“These days, the biggest issue in Georgia isn’t threats from Moscow; it’s the political foul play that risks jeopardizing its biggest infrastructure project in years: a deep-water port at Anaklia on the Black Sea coast,” Thomas de Waal, a senior associate at Carnegie Europe, wrote in the article.
Georgia lost ground in the Economist Intelligence Unit’s Democracy Index for 2018. To some critics, it currently comes across as a de facto one-party state controlled by the Georgian Dream party of oligarch Ivanishvili. Yet compared to other post-Soviet countries in Eastern Europe, it’s doing relatively well.
The country still has checks and balances, de Waal conceded in his piece. Nongovernmental organisations and parliamentarians lately won the first round of the latest row over the way the country is governed. Ten candidates for the Supreme Court with dubious reputations were forced to withdraw their candidacies after a major public backlash against them.
Largest Georgian lender TBC—included in the London Stock Exchange’s FTSE 250 Index since June 2017—responded to the announcement of the investigation into some of its historical lending by saying that it was the target of “dark PR” and a “deliberate attempt to discredit and tarnish its reputation”.
“Rumors… are nonsense”
“The rumors about money laundering are nonsense. The operation [in question] was absolutely open and transparent,” Zviad Kordzadze, Khazaradze’s lawyer, argued in comments reported by Georgia Today on January 9.
Gigi Ugulava, one of the leaders of the parliamentary minority party European Georgia, was quoted by Georgia Today as saying: “[Co-founders of TBC Bank Group and its chairman] Khazaradze were trying to get on well with Ivanishvili before but it did not work out… We see business cannot breathe freely.”
However, Georgian Dream MP and vice speaker of parliament Gia Volsky told the publication that he rejected the idea that political motives featured in the TBC case. “It is impossible to blame such a huge financial institution so groundlessly,” he said.
The Prosecutor’s Office of Georgia has published a letter submitted to investigators by Khazaradze. The letter allegedly frames threats made to the banker, but the Office said it was only a copy of the original document, making it impossible to verify for authenticity, civil.ge reported.
Claims of threats from interior minister
Khazaradze reportedly said that he sent the original to London for authentication. He has previously told how he claims to have received written threats from Interior Minister Giorgi Gakharia ahead of the second round runoff in last November’s presidential elections, warning him of reputational damage should he fail to meet proposed conditions.
The letter published by the Prosecutor’s Office includes a list of requirements, including public statements Khazaradze was told to make and influence he should exert regarding two TV stations—one controlled directly (Artarea), the other held by one of his business partners (TV Pirveli).
“In this case [if the conditions are met], we are ready to hold a healthy dialogue without any preconditions. Otherwise, we will use all legal and objective instruments at our disposal and will do so publicly, for internal and external audiences,” the letter reads.
Zviad Kordzadze, Khazaradze’s defence lawyer, said the letter was handed over to Khazaradze through an intermediary on November 1, a few days after the election first round, in which the Georgian Dream-endorsed candidate, Salome Zurabishvili, finished neck-and-neck with the UNM-led coalition’s Grigol Vashadze.
The cited intermediary, according to the attorney, was not an employee of the Interior Ministry but this person “went for a meeting [with the Interior Minister] and returned with the letter”.
Khazaradze on March 5 further accused Gakharia of sending him written threats, civil.ge reported. He made his claim while addressing the Georgian parliament’s finance and budget committee on March 4.
At a presentation and question-and-answer session lasting for almost four hours, Khazaradze spoke of an “orchestrated attack”, “blackmail” and “threats” from politicians and public officials, directly accusing Gakharia.
“Ahead of the second round of [the presidential] elections, I received a letter from one high-ranking official which contained threats, direct threats, that they would destroy our reputation both here and in the international arena. I was very surprised that this was a written down, rather than told to us orally. There were also demands, which we did not fulfil, of course…you know what happened next,” Khazaradze said.
In a response quoted by InterPressNews, Gakharia denied all the claims made against him by Khazaradze.
“It was the attempt of the privileged businessman to grab the immunity from the parliamentary tribune with gossip. Everything else is a lie. Full stop," Gakharia reportedly said.
Forced to step down
Khazaradze and his deputy Badri Japaridze were lately forced to step down from the supervisory board of TBC after the central bank, the National Bank of Georgia (NBG), and prosecutors referred to the accusations of “actions contradicting conflict of interest legislation” in transactions dating back to 2008. Khazaradze retains his position as the board chair of TBC Bank Group PLC, the parent company of TBC, registered in the UK.
If Khazaradze chooses to make public any differences he has with Ivanishvili, he might draw on some ammunition provided by Freedom House’s Freedom in the World 2019 report on Georgia. It concluded that Ivanishvili is impairing the ability of Georgia’s elected officials to determine and implement government policy,
Noting Ivanishvili’s “informal role”, the US-based watchdog said that although the businessman holds no public office he “exerts significant influence over executive and legislative decision-making”. Working out how far that influence goes is presently more important than it's ever been for business people in Georgia, with Ivanishvili and Georgian Dream more powerful than ever following the 2018 presidential election.