14.Sep .2021 22:00

‘Let’s be pragmatic’ – Interview with Fady Asly, Head of ICC

‘Let’s be pragmatic’ – Interview with Fady Asly, Head of ICC
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Remittances in Georgia outnumbered the FDI by 2.5 times, for the whole of 2020.
Meanwhile, the government says Georgia does not need additional loans to sustain the high deficit partly due to the COVID-19 pandemic. But this refusal was targeted only to the EU, the only conditioned loan aimed at reforming the most important pillar for drawing foreign investments in the country (among many other important issues), and that’s the Judicial System in Georgia.
The Checkpoints sat down with Fady Asly, representing the largest community of foreign investors in Georgia – the International Chamber of Commerce (ICC) to discuss the current state of the economy and some recent policy implications for the country aspiring to the EU membership in 2024.
Mr. Asly, thank you for speaking to us. Do you agree with the PM’s statement that Georgia’s economy is on the recovery track and that it has reached the boiling point, to put it in PM’s own words?
The economy is surviving. Many businesses are in a very difficult situation. Of course, all businesses that are linked to tourism or hotel business are suffering a lot. Many businesses are on the verge of bankruptcy. But they are not talking about it, they are scared to speak because their bankers could panic and suspend their credit lines. We are in a very difficult position and the Prime Minister knows that very well – better than me, better than you, better than anyone else. They know where they are heading in spring. Once the vaccination wave is over and people would calm down a little bit from the COVID-19; then they will wake up after being drunk and they will realize what difficult economic situation we are in and where the poverty has taken them. More than 250, 000 people have lost their jobs, totally. Thousands of people have left Georgia to work abroad. Inflation is rampant. People cannot survive with their salaries anymore. So what economy, and what boiling?! Very little foreign investments – almost nonexistent: Georgia is doing very bad foreign investment-wise compared to other countries.
So, this recent two-digit growth is not so unprecedented for you…
Elene, let’s be pragmatic. Last year we were on full lockdown. We had negative growth. What’s a double-digit growth when we were in negative growth? It means absolutely nothing. We didn’t even catch up. You know, if you have a pizzeria and you need to sell 100 pizzas a day to break even, and last year because of the lockdown you sold an average of 10 pizzas a day, and this year you are selling an average of 20 pizzas a day, you would have increased your sales by 100%, but you would still be very far from being profitable. Now if our government was running the pizzeria, the Prime Minister would have made a big victory out of the 20 pizzas, claiming that the government increased sales by 100% in one year, and it’s exactly what they are boasting about regarding economic growth this year.
This is one point – the base effect. What about inflation? A very popular phrase that inflation devours economic growth that the government says is an inaccurate judgment since real economic growth in itself excludes the effect of inflation – what’s your take on this?
Pikria – my cleaning lady – knows more about inflation than the Governor of the National Bank, the Minister of Finance, and the Prime Minister. Every day she comes to me crying and saying: ”I used to buy a chicken at 15 Lari and now it’s 25; I used to buy eggs at this price and they are much more expensive, etc. – inflation eats economic growth, and in order to calculate the net GDP you have to subtract the inflation out of it, it is called GDP deflator. In 2018 and 2019 because of the devaluation of the Lari, the economic growth figures were still normal in Lari, about 5% compared to the preceding years. So, in Lari, because of the devaluation we were showing some economic growth, but in Dollar, we were having no economic growth at all. This year the Lari didn’t devalue compared to 2020 and now the reality is showing up. That’s why we have such a big inflation rate that will largely offset the economic growth.
The volume of remittances in 7M21 in Georgia is 2.5 times larger than the FDI for the whole of 2020. What does this say about the state of Georgia’s economy?
This means first of all that we had very low FDI, to start with. And then this means three things. It means that more people are leaving Georgia, young people, from the productive force of Georgia – the educated, the young who can build the country, they are unfortunately leaving for better skies, they are going abroad and they are transferring back money to their families. This is one. Two – you have about 250, 000 people who have lost their jobs. They are without income – so, their relatives who are abroad are sending them money so that they can survive. Thirdly is inflation that we discussed: People cannot survive with their salaries anymore. If last years with 800 Laris a family of two could more or less survive, now it’s not enough – so, they are asking their relatives abroad to send them money so they can sustain themselves. It is not a positive sign when the remittances increase so much in such a short period of time this means that we are in a situation of serious crisis.
It might not have been such a big problem if these people abroad had high wages or, for example, worked for some technology companies, right? That’s one thing and on the other hand, we see that higher dependency on such transfers than in Georgia is only in the poorest developing countries and post-Soviet countries. Can such growth be sustainable in the long run?
As I mentioned before, in one of my posts, brain drain is the weapon of dictators and kleptocrats. The more we see the younger people leave – between the age of 22 and 40 – the fewer people will remain in the country to vote for a change. This gives dictators more control over their countries. So, this is one point. The second point is that the money that is transferred by those people abroad to their families in Georgia is used by the families to pay for utilities, medicine, for food that are the first necessities of any family. And usually, in countries like Georgia, those products are controlled by kleptocrats, who are connected to power, those are wealthy businessmen who have political leverage over the decision-making process, so this helps them keep control and power at the expense of the remaining population.
What could change such a system?
You need a new government, with a new mentality, with a new direction. You need to bring FDI to the country to create jobs; otherwise, it will never change. For the past 9 years, the government has done everything in its power to keep foreign investors out of the country, through harassment, intimidation, and racketeering by state structures and people close to the government, not mentioning defrauding them through the courts or arbitrarily confiscating their residencies. I will even give you a very updated example: The Ministry of Interior has instructed Turkish Airlines and probably other airlines as well to prohibit any Iranian from boarding their planes in Istanbul or at other airports of departure, which is a blanket discrimination cover over Iranians who are by law entitled to visit Georgia without a visa, Iranians who intend to invest in Georgia are our neighbors, they have money – a lot of them don’t approve their own government policies, and they want to diversify and invest in Georgia. You cannot as a government blanket discriminates against the population of a whole country. You cannot prohibit them from boarding planes by giving unofficial verbal instructions to airlines, and by refusing to give written instructions, because they know very well that they are breaching the law and the Constitution – I have all the documents, I have letters regarding this matter. So Unless we have 3, 4, or 5 billion dollars in foreign investments a year - which is doable for Georgia if the government changes its policies - we will never be able to create jobs and fight poverty in the country.
Georgian Dream refused EUR 75 million loan – the second tranche – from the EU stating that the economy needed no more debt. But we know in reality that it was the EU that withheld the loan because the ruling party did not commit itself to the most important reform and that’s the judicial reform. What impact it might have on Georgia-EU relations?
First of all, it was a big lie, because as you said it was the EU that doesn’t want to give this money anymore, but the government was faster than the official statement of the EU, this was very childish and very unprofessional as a matter of fact. Secondly, you cannot deal with the EU like someone would deal with their friends, or with their next-door neighbor or their business partner. Those are countries, we are talking of the EU or the US – you don’t humiliate your major partners, at a time you need them more than ever, because we know how much money EBRD is putting in the country, how much money the European Investment Bank is putting in the country and German Banks and the EU as an institution. So, you cannot humiliate them and show them that you don’t need their money, when two days later you take a 283 million dollars loan from the IMF. So, why didn’t they refuse this IMF loan if they don’t need to borrow money anymore? A small country like Georgia trying to humiliate the EU – I mean, what do you think, this will be forgotten by the EU? Of course - not. Now, whenever Georgia will need the EU, they will be facing a very polite and diplomatic smile.
So, you think that’s what we get in 2024 when we apply for the membership as the PM says?
If they continue like this, my great-grandchildren would have died a long time before we become members of the EU – if we continue with those policies.
Since we mentioned the IMF, do you think Georgia will get another IMF Program – because that’s what’s coming up by the end of 2021? Because if we look at this refusal, it means directly that Georgia doesn’t need foreign money, and indirectly, it also means that Georgia doesn’t need any support in the reform agenda, and that’s the whole mandate of the IMF, right?
I heard Irakli Kovzanadze, the Chairman of the Budget and Finance Committee in BMG’s Business Morning Show who was saying that it was their commission that identified the need to borrow those EUR 150 million from the EU, and it was earmarked for the budget of this year and the budget of the next year and Georgia needs it. We borrowed more than 60% of our GDP which is the legal borrowing limit, and we need to service the debt. In a situation when we don’t have significant FDI flowing into the country, when we are only surviving on borrowing a foreign currency to stabilize the Lari – this is what’s happening. Exports? – they didn’t increase that much to sustain the economy. What remains? Tourism? – this year we’ll get one-third of what we got in 2019, which is not enough to sustain the trade deficit. So, what are they going to do? They need to borrow money. And the only way I see would be to artificially strengthen the Lari by subsidizing it, so the ratio of foreign debt to GDP goes below 60% which will allow them to borrow more money. Probably, this is the strategy that they intend to follow, I don’t see with the current economic disaster on hand, what else they can do?
Do you as a businessman, as the Head of the largest foreign investor chamber, feel at ease in Georgia? That’s what the PM said that he is proud that the business community in Georgia is calming down.
Maybe the Prime Minister is meaning those businesses that are partners with the members of his party and who live in greenhouse conditions. But he’s definitely not speaking for the business community at large. To give you an idea, in 2020, greenfield FDI decreased in Georgia by 85% compared to 2019, when the world average was a decrease of 33%! 85% decrease is the worst figure of the whole region and one of the worst figures among the 190 countries that are assessed by the World Bank. This means that technically there were almost no new foreign direct investments in Georgia in 2020.