Jim Armitage: Investors need not worry: Georgia's new leader is no Kremlin stooge – yet


Jim Armitage
Friday 19 October 2012 12:37

Global Outlook The Tbilisi bar owner preferred to remain nameless. Given what he was about tell The Independent about his predictions for Georgia under its newly elected prime minister, you can understand why.

Speaking in one of the elegant art-nouveau streets in the centre of the capital, he frets about street crime: "I know these mafia guys. They will come back now. On the street there will be beatings, people will come in here and cause trouble. Will I even be able to call the police now? I know what it was like before. It will be like that again."

Georgia – this forested, mountainous country strategically key for the economies of western Europe – has been more in the news lately than at any point since its ill-advised fight with its vast neighbour, Russia, in 2008. The reason? Parliamentary elections that saw the charismatic Mikheil Saakashvili's party's rule unceremoniously ditched for the first time since his Rose Revolution in 2003.

Mr Saakashvili ran the country with something of an iron fist – a fact applauded by our Tbilisi bar owner. On the positive side, he once sacked the entire traffic police force due to its endemic corruption. On the negative, stories emerged – most damagingly before the election – of appalling brutality in Georgia's jails.

As a result of his heavy-handedness, and due to his long term in office, many had been worried he would refuse to bow out gracefully.

But bow out he did, averting the prospect of major civil unrest in a country where memories of the war with Russia remain vivid. History will remember him kindly: some may even argue he's more deserving of the Nobel prize than the European Union – although that's not saying much.

Mr Saakashvili will remain in his post as president until next October. But there is surely a new chapter afoot in the story of this country whose territory is the main transit route for Caspian oil and gas to the energy-hungry West.

In control will be Bidzina Ivanishvili, a billionaire who made a killing from the Russian privatisations after the Soviet Union collapsed. Until recently, he was the biggest private shareholder in Gazprom, the vast Russian gas company.

While Mr Saakashvili was relentlessly anti-Russian, the suspicion among his critics is that Mr Ivanishvili will pull the country towards the Kremlin and away from the West.

This seems only half right. He will, of course, be more constructive in his dialogue with Russia. He would be insane not to be, and the Georgians will be best served by a new broom government rebuilding relationships with the economic giant next door.

But surely the most likely outcome is that he will also look West, continuing his predecessor's friendly relations with the US and Europe.

So far, so good. His first official visit is already in the diary for the US, and he has confirmed the country will still seek to join Nato, retaining the relatively high numbers of Georgian troops in Afghanistan.

Meanwhile, the Kremlin has welcomed his election as potentially allowing relations to "normalise".

Georgians can only hope he is able to serve both masters, and that Russia's President Putin does not demand he makes a "with us or against us" type ultimatum.

These are big questions for the politicians and diplomats, but also big risks for investors considering a punt in the Georgian economy.

The relatively few already there should have been doing nicely of late.

Mr Saakashvili's iron fist created less-corrupt institutions and industries that have led to an environment where economic growth is forecast at 6 per cent this year.

And, if Mr Ivanishvili proves to be an adept administrator – although questions do remain about his competence – there are some major potential gains to be seen in further efficiency improvements.

For instance, one statistic often bandied around is that agriculture (wine is big business here) employs about half the working population but makes up less than 10 per cent of GDP.

Investors are hoping that the best clue about the future direction of this first non-revolutionary government is in its bigger neighbour Ukraine. There, the Orange Revolution leaders were booted out by the electorate in 2010, but the new leadership has continued the effort of flirting with both East and West.

But enough of the macro stuff. I'll leave the final word to property investor Mark Mullen, a larger-than-life Texan with an Obama-Biden badge permanently on his chest. He's lived in Tbilisi since the bad old days of the late 90s and played a role in the Rose Revolution. Looking out across the cobbled streets of Tbilisi's old town from the hotel he co-owns, he is sanguine about the transition.

"There were fairly significant problems under the old government. Things were overly personalised, it was about who you know. And while the old government didn't control every business like some people claimed, it did control whatever business it wanted to. There was a general sense of vulnerability, there was anxiety about what the authorities would do. You could make a mis-step and end up in jail. There is optimism now about all that changing."

* Additional reporting by William Dunbar.

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