BUSINESS
GEORGIA TODAY MAY 24 - 26, 2016
7
Georgia’s Revolutions and Economic Development: from 2004 to Present Continued from page 4
French Fries to Be Made in Georgia BY EKA KARSAULIDZE
G
eorgia-producedFrenchfries by local Freco Company are to appear on the market this autumn. With an investment amounting to GEL 68,000, the construction works of the facility are already underway and are scheduled to be completed mid-August, 2016. The company grows a special type of potato best suited for French fries and intends to produce 150,000 tons in 6 months. According to Freco’s representatives, the demand for fries, especially frozen fries, is increasing in the world market. Thus, during the first three years the company aims to substitute imported products in the Georgian market, with the ultimate aim of producing
enough to then also export. The majority of frozen Freco French fries – about 90 percent – are to be sold to restaurants, bars and hotels while the remaining 10 percent will be sold to local supermarkets. Freco is also testing potatoes for chip production. The Ministry of Economy and Sustainable Development of Georgia, in the framework of the state program ‘Produce in Georgia,’ transferred 1,386 square meters of non-agricultural land in the Muskhi village, Akhaltsikhe region, southwestern Georgia, to Freco for a symbolic price of 1 GEL. Produce in Georgia is a government program designed to stimulate domestic production. The program has already funded 171 companies with a total investment exceeding GEL 395 million and provided workplaces for 7,600 people.
What is still not fully appreciated today is that some of the zero-tolerance policies, which survived the Rose Revolution days, could and should be relaxed today thanks to the tremendous and irreversible cultural changes Georgia has gone through since 2003! For example, giving customers a few weeks to settle their bills (while charging penalties and interest!) will not run the risk of spawning a culture of nonpayment as long as the new rules are clearly communicated and enforced. Likewise, the zero-tolerance and zerodiscretion practice of subjecting businesses to maximum allowable penalties and freezing their bank accounts in every case of (suspected) tax evasion is clearly counterproductive in today’s realities. It may be that giving tax auditors some discretion in dealing with delinquent tax payers (and subjecting their decisions to court review) would marginally increase corruption risks and reduce tax collection (in the short run). However, the benefits of doing so (in terms of improved business climate, investment, business activity, and, ultimately, tax revenues) clearly outweigh any such risks. Growth and equity. Ultimately, it is up to each society to decide – politically – what is a fair distribution of resources and how much it is willing to lose in economic efficiency in order to achieve it. In the process of doing so it is impor-
Figure 1: Georgian occupation structure in 2014
tant to consider that providing the poor with a minimum level of income and access to social services, such as healthcare and education, reduces the amount of resources available to the private sector. Hence, an obvious tradeoff. So far, the efforts by the Georgian Dream government to achieve inclusivity have often been rushed, resulting in considerable waste of public resources, and most importantly, in little improvement in the lot of Georgia’s poor. A related concern is whether or not the generous social outlays could be sustained from the fiscal point of view, given the competing needs to accelerate investment in public infrastructure and reduce the tax burden on businesses. Between Europe and Eurasia. Implementing the DCFTA with Europe while maintaining economic exchanges with
the Russia-led Eurasian Union will be a daunting balancing act, politically, economically and diplomatically. The EU will undoubtedly provide technical assistance and funding to offset some of the harmonization costs. At the same time, Georgia may have to deploy every diplomatic tool at its disposal to reduce the risk of Russia’s retaliation for joining a competing trading block. There are many reasons for Georgia to be closer to Europe, as laid out in Zurab Zhvania’s passionate speech at the European Parliament. However, dipping into the deep (and comprehensive) FTA with the EU without a careful consideration of national economic interests may backfire. If the costs of AA/DCFTA agreements exceed their benefits, Eurasia may come back with a vengeance. Economically, as well as politically.