Georgia braces for more political and economic uncertainty as it prepares for the upcoming October 27th Presidential election. This just a year after the October 2012 parliamentary elections which left the powerful Rose Revolution government of Mikheil (Misha) Saakashvili and his United National Movement (UNM, now in opposition) defeated.
The political developments during the past few years in Georgia have been a lot more turbulent and unpredictable than during the “golden years” from 2004 up until November of 2007 when police and security forces dispersed opposition protests in the capital Tbilisi using excessive force—to include reports of the police physically clashing with the media. On a broader scale this was the first important incident since the UNM came to power in 2004, displaying just how far the government had gone in order to maintain its power. The UNM government had been responsible for many successful reforms and had achieved strong economic growth (averaging about 6% per year between 2005-2012), but it had also become increasingly interventionist while attempting to sustain the rapid growth. Also, the benefits of this growth were unevenly distributed as poverty and inequality levels remained high. Unemployment rates were only lowered by about 5% between 2004 and 2012, staying stubbornly high at 15% (the unofficial unemployment rates have been reported to be as high as 30%).
Throughout the year 2007 the UNM leaders had been continuously accused of power abuse, and the public dissatisfaction had escalated into the November demonstrations (mass protests in Georgia have also been known to be strengthened by “paid demonstrators,” charging anywhere between 10 and 20 Georgian lari ($7-15) per day for joining the protests). The protesters called for early presidential elections and in order to counteract the backlash from the atrocious human rights abuse case, Saakashvili agreed to hold early elections in January 2008. Saakashvili won the elections receiving 53.47% of the votes, but the lack of credible opposition was striking. The next two runner-ups were politically unproven Georgian businessmen. They were certainly not serious enough contenders to win and then run the country.
The 2007 events played an important role in Georgia’s GDP dropping quickly in early 2008 as investor confidence deteriorated. Later in the year the dual challenge of recovering from the August war with Russia and the looming global economic crisis led the country into a recession. Some experts believe that the war was somewhat beneficial to the economy as it was injected with billions of dollars in post-war recovery aid money. As a result, growth quickly resumed in 2009 and remained steady until the second half of 2012 when more political turbulence and the still sluggish global economy drove foreign direct investment down by 23%.
As a bitter feud between the new Prime Minister Ivanishvili and President Saakashvili continued in early 2013, the investor confidence remained low. The two strongest presidential candidates, as one would have expected, are from the current Georgian Dream Coalition government and from the UNM (the other side of the two-party Georgian parliament). Regardless of who wins the elections, it is for certain that Misha will not be Georgia’s president anymore as his second term has come to an end. On the other hand Prime Minister Ivanishvili has announced his decision about an early resignation in the near future, once the election season is over. This leaves a very important variable in the business confidence-building formula completely unknown. The identity of the country’s key leaders beyond October is anybody’s guess.
In a recent interview, the European Bank for Reconstruction and Development (EBRD) president Sir Tuma Chakrabarti named the overall weak economic conditions of the Central and Eastern European region as the main reason for Georgia’s economic slowdown and stated that the 3% growth predictions are “good,” as some countries in the region are only growing at 1% or not at all. But it must be acknowledged that some of the new government’s decisions and the sluggishness of that decision-making process have not exactly eased the situation. To quote a recent publication in The Economist, “how investment funds will work in detail is unknown. And how the government will tackle the property disputes created by the UNM’s arm-twisting is unclear. Moreover, the process of reforming the labour code sent mixed signals to Georgia’s business community. A temporary ban on foreigner’s ability to purchase land raised questions about its openness to FDI.” All of this uncertainty over policy is rather inexcusable now that the new government has been in place for nearly a year and is not exactly new anymore.
Also, the IMF recently had to cut growth forecasts for 2013 from 6% to 4%, while others predict even less – 3% growth for the year (which according to the IMF is “substantially below potential”). The economy only grew by 1.8% in the first half of 2013 and the business confidence is not expected to improve much before the end of 2013 due to the following factors:
1. The global economic climate is still rather shaky, and Georgia’s neighbors are not doing any better financially. Global FDI levels and Georgia’s partner country growth have weakened. These are some of the external factors that are bound to affect the Georgian economy regardless of the nature of domestic ordeals.
2. In an official open letter the Prime Minister of Georgia recently restated his intention of leaving politics very soon in order to join and enhance the “currently lacking civil society.” So at the moment “Misha the builder” is preparing to leave the building, most of his “building projects” have been frozen at a standstill anyway as the new government has found multiple faults with many of the development projects. Some of these issues include property ownership disputes, questionable business transactions, and a newfound need to lower the government spending (which turns out to have been a bad thing as the IMF has recently alerted the Georgian authorities that government underspending has hindered economic growth). Thus the country is bound to have not just a new president but also a new prime minister in the near future, adding extra unknown variables to the uncertainty problem.
3. There is a lot at stake in the upcoming presidential elections, and a peaceful transfer of power is still the exception in Georgian politics, not the rule. Regardless of who wins, the problematic of cohabitation is going to come up again. The two parties don’t have a very good track record of cohabitation, thus more political turbulence, at least in the short-term, can surely be expected.
On top of it all, and most importantly, public dissatisfaction with both parties has increased as the high expectations of economic prosperity from last year have not been met. A recent NDI study shows that unemployment, Georgia’s territorial integrity and lack of healthcare remain at the top of the very long list of Georgian people’s problems. So, the question of “to invest or not to invest in Georgia?” might be a complicated one to answer, but it might just come down to how much faith the potential investor has in the maturity of Georgian political processes.
On the upside, in a region with clear signs of retreating democracy, the fact that Georgia has been able to handle political change without democratic regression is worth mentioning. Moreover, despite the current environment of uncertainty, cautious optimism should be allowed. It is reasonable to predict more political pluralism and maturity for the medium term should the opposition remain strong and should the government learn how to make up its mind.
For additional reading on this topic please see:
Ethnicity and Political Development Processes in Caucasus
Georgia: The Next Episode
Caucasus Analytical Digest No. 49: Georgian Politics