Monica Ellena in Tbilisi -

Georgia hopes to complete its free trade deal with China within a year, while it continues to pursue a "pragmatic" approach to improving its fraught relations with Russia as potential obstacles such as its desire to join Nato loom, Prime Minister Irakli Garibashvili tells bne IntelliNews in an excusive interview.

After years of terrible relations with its former Soviet master that have involved numerous trade wars and an actual bloody war in 2008, Georgia is opening as many doors as possible to diversify and strengthen its economy, betting on both east and west.

“Georgia has a very strategic location, we are the country that connects east and west as well as north and south. And Georgia is the natural gateway to Europe from Asia. This is the reality,” the 33-year-old PM tells bne IntelliNews on the sidelines of the Silk Road Forum held in Tbilisi on October 15-16, which was co-organised with the Chinese government and attracted over 1,000 delegates from 32 countries to discuss how to revive the ancient trade corridor.

Seven years after the war with Russia over the breakaway region of South Ossetia that scared off investors and allies, Georgia has proved to be “a reliable and stable country for the transit of energy, trade and goods that flow into this corridor,” he stresses.

The tarmac on the new Silk Road will certainly be energy, but the project will encompass “everything, any goods” and China is the trump card. The feasibility study on the free trade agreement (FTA) is over and an analysis showed that the deal would boost Georgia’s annual exports to China by 95% and China’s by 1.7%. “When I was in China [in September] I got confirmation to start actual work [on the terms of the deal], which will begin on November 5,” says Garibashvili. “I am sure it will not take too much time, and maybe will be completed within a year.”

An FTA with China would be the last of a string of such deals that the small Caucasus nation of 4.4mn has signed over recent years. In June 2014 it signed a free trade and association deal with the EU and enjoys similar deals with many CIS countries and neighbouring Turkey, and in September began negotiations over a deal with the European Free Trade Association. “This makes us unique,” the PM claims.

Russian roulette

Open trade with diverse countries is essential for Tbilisi, as the long shadow of Russia looms large. Russia has traditionally been the main destination for Georgia's exports (as well as the source of remittances), so when Moscow banned Georgian products in 2006 the country lost overnight about 80% of its export market for key products like wine. 

Since you can’t choose your neighbours, normalising relations with Moscow has been a key goal of the Georgian Dream coalition since it won the general election in 2013. The prime minister believes that what differentiates the new government’s approach to that of the previous administration led by former president Mikheil Saakashvili is its more practical attitude. “We have proved in the last three years [that] we are a responsible player in the region… We are pragmatic people, we want to and we will avoid any conflict, because we truly believe in solving problems through peaceful means, not by escalating them.”

The coalition is on the same page as Tedo Japaridze, chairman of the Georgian parliament’s foreign relations committee, who addressed the recent Bucharest Forum by saying that, “we want to live with Russia, we don’t want to live in Russia.”

Georgia considers Russia to be an occupying force, as Russian troops are stationed in the breakaway regions of Abkhazia and South Ossetia, which account for about 20% of the country’s territory. “Russia still continues its occupation policy. Of course, we strongly condemn the creeping annexation – this is what we consider it – of our territories of Abkhazia and [South] Ossetia. [The Russians] disregard international law, it is obvious. Nevertheless, we made it very clear that there is the need for responsible and pragmatic dialogue with Russia,” Garibashvili says.

Even so, the PM is adamant that Georgia’s Euro-Atlantic aspirations are set in stone. “[This is] the choice of our people, we’ve followed this policy and we’re going to continue. I believe that Russia should also be interested in a stable neighbour country,” he says. “Our Nato aspiration is not against anyone, it is not against Russia, it is for a better protected future for our next generation.”

Such an ambition does not go down well in the Kremlin, which regards any moves by Georgia to deepen relations with the Western military alliance as a provocation. At the last Nato meeting in September 2014, Georgia did not get the desired Membership Action Plan (MAP), the last step before full membership, but instead received a substantial aid package, including the establishment of a Nato training centre that opened in August.

Complicating matters is public opinion. A non-binding referendum in early 2008 on EU and Nato membership received overwhelming public support. Fast-forward seven years and the mood has turned lukewarm. A survey by the National Democratic Institute (NDI) released on October 17 showed that 61% of Georgians still support the Euro-Atlantic path, marking a 17-percentage-point drop from a year ago. The government questioned the results, which also showed a steady fall in popular support for the ruling coalition.

Meanwhile, Garibashvili stamped on speculation in the media that his government is negotiating with the Russian state gas company Gazprom to play a bigger role in its gas market, instead reinforcing the “key” energy relations with neighbouring Azerbaijan.

On September 25, Georgian Minister of Energy and Deputy Prime Minister Kakha Kaladze met with the Russian gas export monopoly’s chief executive, Alexei Miller, in Brussels, and stated that “any developed country thinks of diversifying its energy supplies,” and Tbilisi would consider additional supply from Gazprom if the proposal is commercially viable. This provoked howls of protest in the media, suspicious of a Russian company that is used by the Kremlin as a geopolitical tool and is currently being investigated by the EU for anti-competitive practices. “The main provider of gas is and will be Azerbaijan, our main strategic partner,” insists Garibashvili, who recently paid an unexpected visit to Azerbaijan. “We have great relations, why would we replace Azerbaijan gas with Gazprom gas? This is not our intention – our policy is crystal clear.”

“Gazprom supplies gas to Armenia via Georgia, which proves Georgia also connects north and south [as well as east and west], and it has been like this for many, many years, even under the previous administration,” he states, adding that the meeting focused on the potential increase of gas volumes for Armenia. "They had to negotiate with the Georgian side regarding this issue because we keep a certain amount of gas from this pipeline,” he explains. Gazrom provides Georgia with about 200mn cubic metres of gas per year (cm/y) as a transit fee, out of the total 2.2bn cm/y the country consumes.

Trouble at home

This year’s economic slowdown in the region has taken its toll on Georgia. The 35% devaluation of the Georgian lari versus the US dollar since last November has severely hit people’s pockets and Russia’s recession harmed Georgia through falling exports and remittances. In 2014, Georgia’s economy expanded by 4.7%; this year the government predicts growth of 2.5-2.8% and 3.0% for 2016. “We managed this crisis situation strongly and efficiently,” the PM maintains. “There is a slowdown everywhere, oil prices dropped, devaluation in many countries – this has a negative impact on Georgia, as there is a spill-over effect.”

The government is looking to bolster growth through plans to attract more foreign direct investment (FDI) and boost the economy via more local production; about 230 new factories were set up with the help of government programmes in the last two years, the PM says. “Inflation is [also] not high, which is why we are confident. The people with loans in US dollars and salaries in lari are not in an ideal situation – they have had to extend their loan period with the banks, which are finding new terms for them.”

But the economy is not the only challenge at home. Politically, the government has faced criticism over its meddling with the central bank’s independence, alleged attempts to limit the freedom of the press, and allegations that the former PM and Georgia’s wealthiest man, Bidzina Ivanishvili, is still pulling the strings of government behind the scenes.

The Constitutional Court has suspended as an interim measure a controversial bill passed in September that stripped the central bank of its supervisory role and transferred it to a newly established Financial Supervisory Agency (FSA) under parliamentary control, raising investor concerns about the independence of financial regulation at a critical time for the economy. “I can’t judge the Constitutional Court, and of course everyone has to obey its final decision… We continue to work and coordinate closely with the National Bank. I will coordinate to make sure there is a good communication between the government, the Ministry of Finance and Economy, and the National bank of Georgia. There is no reason for dramatic scenarios,” he says.

Garibashvili rejects the accusation that his government is trying to influence the media, specifically actions taken against Georgia’s most popular TV station Rustavi 2, which is close to the opposition United National Movement of Saakashvili. Rustavi 2 is currently embroiled in a property dispute that has led to the freezing of its financial assets, thus threatening its capacity to broadcast. The management of the station has accused the government of blocking a funding deal necessary to continue its operations. Human rights groups as well as President Ghioghi Marghvelashvili have expressed concerns, while the US embassy called any actions that give the appearance of restricting media freedom as “disturbing”.

Garibashvili rejects the accusations, arguing that Rustavi 2 is not the only opposition channel. “Which of the other channels are pro-government? None of them. All of them are very critical of government and in the last three years our government has proved that we want to make media strong and independent,” he says, adding that Rustavi 2 is “a court case, it is not a government affair”.

The president’s position on Rustavi 2 as well as his veto of the bill on the new FSA highlights the friction between the two highest government officials, which has often been played out through the media. The government has accused the president, who ran on the Georgian Dream ticket, of a lack of “gratitude”, while the president has made thinly veiled criticisms of Ivanishvili for his Machiavellianism. The PM stresses that he personally has no issues with President Marghvelashvili. "When it is necessary, I call him and talk. Every time the initiator was me. But the president has his own agenda and vision – I don’t want to judge him.”

As for the accusations against Ivanishvili, Garibashvili is clear. “This government was formed by my predecessor [Ivanishvili], with whom I have worked for ten years and with whom I am very close,” he explains. “From the very beginning, I said sometimes I may ask advice or he may give advice, but this is for our country. I didn’t hide it... [and] he doesn’t make decisions.”