THE MAIN TRENDS IN GEORGIAN POLITICS AND ECONOMY IN SEPTEMBER-NOVEMBER, 2013

23.12.2013

THE MAIN TRENDS IN GEORGIAN POLITICS AND ECONOMY IN SEPTEMBER-NOVEMBER, 2013

Sergei Sargsyan
Deputy Head, Centre for the Political Studies, Noravank Foundation

The autumn of 2013 was politically eventful in Georgia. Among other events, the presidential elections are worth mentioning, with Prime Minister Ivanishvili leaving the official politics, as he announce beforehand, and Georgia initialing the EU Association Agreement during the Vilnius summit.

Prime Minister Ivanishvili’s appointee Giorgi Margvelashvili won a clear first-round majority in the presidential elections of October 27, 2013, thus ending the duality of power in the country and establishing a new political landscape in Georgia, but at the same time leaving a lot of unanswered questions.

It can be safely stated that Ivanishvili won both this poll and the parliament elections last year. Therefore, the question remains, what is going to happen after his departure from power?

Both parliamentary and presidential elections took place under a slogan ‘against Saakashvili’. Consequently, motley indeed political forces rallied around Ivanishvili, whereas M. Saakashvili moved to none less than hardcore opposition, as a result of which the United National Movement (UNM) party led by him is currently more homogeneous than the new government.

UNM, and Saakashvili in particular, among other things are unified by a lust for revenge, and therefore all actions of the current government will be under a focused and biased scrutiny by a strong opposition. Only the forthcoming municipal elections in June 2014 will give a clearer idea about organizational capabilities of the new government in its current configuration and about future viability of the United National Movement.

In regard to the foreign policy, Margvelashvili is a more acceptable figure for everybody – the USA, EU and Russia. Nevertheless, the process of planning the relations with blatantly anti-Russian Saakashvili was by all means simpler for Moscow, including in the period before August 8, 2008.

However, G. Margvelashvili is significantly less powerful than his predecessor. Virtually right after winning the majority in the parliament, the Georgian Dream started introducing amendments in the Constitution of Georgia; first, to balance the power between the president, parliament and prime minister, and second, to neutralize the amendments that Saakashvili made to “customize” the constitution for his own needs. He hoped to take over the post of prime minister after leaving the president’s office, and according to the Constitution adopted by the Georgian parliament on October 15, 2010, the real power in the country was supposed to be concentrated in the hands of the executive. Yet now, despite a considerable boost to the role of the prime minister, the parliament retains leverages for control over the executive power.

As far as B. Ivanishvili is concerned, he kept his promise to resign after presidential elections, which were won by his candidate. Formally he also left the politics altogether, and declared that will focus his efforts on the Co-Investment Fund worth $6 billion, which is greater than Georgia’s state budget and the presentation of which took place on September 30 in Tbilisi.

It is intended that the Fund will attract additional investments and subsidize projects in energy, agriculture, industry, transport and tourism. The best business ideas will receive 25-75% financing from the Fund.

The contributors to the Co-Investment Fund are private UAE companies Dhabi Group and RAK Investment Authority (at a time they actively cooperated with the former government of Georgia), State Oil Fund of the Republic of Azerbaijan, Batumi Industrial Holdings (subsidiary of the Kazakhstani company KazTransOil), a Turkish conglomerate Çalık Holding A.S, as well as Bidzina Ivanishvili himself, family of the late a Georgian businessman Badri Patarkatsishvili, and Kazakhstani entrepreneur Alexander Mashkevitch (currently living in Israel)¹. B. Ivanshvili’s contribution to the Fund is $1 billion, i.e. about 15% of the total capital.

According to the business plan, the Fund will operate for nine years, after which the investors will get back their shares of proceeds and assets². In addition, B. Ivanishvili plans to establish a venture fund to support innovation projects.

Thus, on the one hand, he retains strong leverage to govern the country, helping the president to play the role of an arbitrator in complicated inter-party and inter-group relations within the governing elite and in its dealings with the opposition. On the other hand, any economic advancement in Georgia will be attributed to the investment-attracting activities of his Fund, whereas responsibility for any failure will most likely be laid on the executive power, especially its economic branch, for not being able to properly manage the attracted finances.

Such scheme of Ivanishvili’s relationship with the government can be very effective, desirable and prolonged. The “Ivanishvili factor” would become a decisive one for Georgian economy and politics, at least in the medium term, especially against the backdrop of support from the EU, as the readiness of establishing a free trade area with the EU was once again demonstrated by initialing the Association Agreement at the Vilnius summit of the Eastern Partnership.

Hopes of Tbilisi for increased financial inflows from the EU seem to be coming true, as Armenia, Azerbaijan and – at least for now – also Ukraine, effectively signaled withdrawal from the process of establishing a free trade area. This will allow Brussels to redistribute the funds intended for all five participants of the Eastern Partnership (already without Belarus) to Georgia and Moldova, however small these funds are.

Georgia consistently expressed interest in the Deep and Comprehensive Free Trade Agreement (DCFTA) and often grossly overstated its importance in strengthening political relations with the EU. For instance, in summer of 2011 the parliament vice speaker Giorgi Baramidze stated that establishment of a free trade area implies not only attraction of even more investments in Georgian economy, but also will effectively mean a full integration with the EU³.

After the August 2008 war, and especially Moscow’s recognition of Abkhazian and South Ossetian independences, Georgia cut down to minimum its political and to a large extent also economic ties with Russia, as well as withdrew from CIS.

With an increasing dependence of the country’s state budget on volumes of cargo transit through its territory, physical and financial penetration of Turkish and Azerbaijani business interests in the economy, and given the large share of Azerbaijani population in the southeastern part of the country (Kvemo-Kartli), Tbilisi was left with almost no room for external policy maneuvering and choice of vectors for foreign policy and economy, other than the EU.

Also, in the period between 1992 and 2007 Georgia received an equivalent of Euro 530.8 million for implementation of various programs. In 2008 Brussels allocated Euro 500 million for overcoming the effects of the August war⁴. On April 15, 2010 the EU earmarked additional Euro 180 million for the period of 2011-2013 to support development of democracy, rule of law, good governance, regional and sustainable economic and social development, poverty reduction, and support for peaceful settlement of conflicts⁵.

Consequently, among the South Caucasus countries Georgia rose to the top in terms of the pace of concluding and implementing bilateral agreements with the EU.

Nonetheless, because the Georgian leadership sees no alternatives to the integration in Western structures, this increases the effectiveness of influencing Georgian policies through principles of “conditionality”⁶ (“more for more”): “the more reforms, the more money”, with additional funds allocated, but under a closer scrutiny.

Some assessments made at the beginning of the Association Agreement and DCFTA preparation process suggest that free trade area will enable Georgia to increase its GDP by 6.5%; during the first five years the total exports may grow by 13.5%, including products of textile industry by 55%; chemical industry – 19%; metal industry – by 30%; woodworking and timber – 21%; and agriculture – 4%.⁷

However, there are also some less optimistic scenarios for economic development of Georgia, including those anticipating deep political and economic crisis in the second half of 2014.

In a very near future it would become evident how realistic Georgia’s expectations were. The Georgian experience, both positive and negative, in signing and implementation of Association Agreement would be interesting for all other participant countries of the Eastern Partnership initiative, which although is no longer high in the priority list of the EU⁸ at least for the first half of 2014, but still continues to be implemented.

¹Мечте Михаила Саакашвили поставили жирную точку. "Georgian Times", Грузия, 4 октября 2013г., http://www.geotimes.ge/index.php?m=home&newsid=28767&lang=rus.

² Ibid.

³ Еврокомиссар о демократических реформах в Грузии. 23 июля 2011г., http://kavkaz-news.info/portal/cnid_178851/alias__Caucasus-Info/lang__en/tabid__2434/default.aspx. 23июля 2011г.

⁴ Georgia and the European Union: perspectives for 2011. Alexander Russetsky, Оlga Dorokhina. Dec. 16, 2010, http://www.easternpartnership.org/publication/politics/2010-12-16/georgia-and-european-union-perspectives.

⁵ http://www.enpi-info.eu/files/publications/Georgia NIP 2010.pdf.

⁶ Jos Boonstra, Natalia Shapovalova, 'The EU's Eastern Partnership: One year backwards', FRIDE, 17.05.2010, http://www.fride.org/publication/764/the-eu'-s-eastern-partnership:-one-year-backwards.

⁷Prospects of Deep and Comprehensive Free Trade Agreement between Georgia and the EU, Amb. Konstantin Zaldastanishvili, February 8, 2011, http://www.easternpartnership.org/community/debate/prospects-deep-and-comprehensive-fr.

⁸ Программа «Восточное партнерство» более не является приоритетом Евросоюза, http://moldnews.md/rus/news/64408, 5 декабря 2013г.

“Globus” analytical journal, #12, 2013

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