Is economic freedom in Georgia under threat?

With Georgia currently preparing for a parliamentary election, the political and economic practices of the country’s government – led by the ruling Georgian Dream party – have again come under scrutiny, this time from US lawmakers.

On January 21, four representatives of the US Congress sent a letter to Georgia’s prime minister Giorgi Gakharia to express their “grave concerns over political targeting and a declining economic trend that spells trouble for Georgia’s path towards democratic reform and Western integration.”

In the letter, co-signed by US House Representatives Adam Kinzinger, Gerald Connolly, Eliot Engel and Michael McCaul, the US lawmakers argue that “Georgian Dream’s perceived political targeting” of the Anaklia Development Consortium (ADC), an international group of companies that were responsible for managing the construction of Anaklia Deep Sea port on the Black Sea has now deterred or prevented investment from American companies.

“These developments seem to reflect an increasingly unfavourable business environment and could deter future US investment in Georgia,” the four US congressmen wrote.

Mr Kinzinger and Mr Connolly are the co-chairs of the influential US House Georgia Caucus, a congressional advocacy group of US lawmakers tasked with fostering relations with Georgia.

The letter of the four US congressmen was published shortly after Markwayne Mullin, a US lawmaker and member of the House Committee on Energy and Commerce, spoke about “a deteriorating economic climate” in Georgia, especially for US companies.

“Recent years have revealed a continued negative trend in democratic and free market economic indicators that has not gone unnoticed in the United States,” Mr Mullin wrote to the Georgian PM, pointing to the case of Frontera Resources, a US-based oil and gas company. In 2018, the company was sued by BIA, Georgia’s national energy company, for allegedly breaching its financial obligations towards the Georgian government.

Mr Mullin states that the voices of concern in the US Congress over Georgia are on the rise, which is the reason why he himself had joined fellow US lawmakers in introducing the Georgia Fair Business Practices Sanctions Act in early 2019.

Besides the US lawmakers, Georgian opposition figures including Mamuka Khazaradze, the former head of the ADC’s supervisory board, as well as the management of the consortium also came out against the Georgian government, saying that they are sabotaging the project.

Likely to be a key topic during parliamentary elections, Anaklia Deep Sea port is the largest infrastructure project in Georgian history and has been repeatedly described as of strategic importance by both the country’s government and the opposition. However, earlier this month, the Georgian government cancelled its contract with the ADC, claiming that it was unable to fulfil its financial obligations.

Last October, Conti Group International, a US-based construction and development company left the consortium, allegedly over a lack of support from the Georgian government.

“The Georgian government’s decision to suspend the construction contract with the Anaklia Development Consortium, in which Conti Group was a member, is definitely an alarming signal in terms of economic freedom in Georgia,” Givi Gigitashvili, a Research Assistant for the Caucasus and the Digital Forensic Research Lab of the Atlantic Council, tells Emerging Europe, adding that the available evidence seems to suggest that cancelling the contract with the ADC was a politically motivated decision about a project, with such decisions “indeed damaging the foreign investment climate in Georgia.”

At the same time, the latest edition of the World Bank’s Doing Business Report says that Georgia is by far the best performer in emerging Europe when it comes to the ease of doing business, with the country ranked seventh of 190 countries.

Mr Gigitashvili says that some Georgian Dream MPs have acknowledged that the project was shut down due to potential threats coming from Russia should construction be completed.

“For the first time in the history of an independent Georgia, our government sabotaged the accomplishment of a large-scale strategic project, which was openly backed by the US government. Regrettably, the fact that the Russian factor played an important role sends a negative signal not only to investors, but to Georgia’s friends in the US and the EU about the country’s reliability as a strategic partner,” he stresses.

Discussing potential sanctions put forward by Congressman Mullin, he believes that the bill, which was introduced over Frontera’s legal dispute with the Georgian authorities, would not gain enough support in the US Congress as it lacks the sufficient number of sponsors. However, the very existence of this bill “is already damaging the country’s image” and gaining more support will likely depend on the final decision taken by the arbitration court in the Hague.

“The fact that arbitration proceedings are pending at an international court gives hope that the decision will be objective,” he says, noting that “it is hard to discuss what impact it can have on bilateral relations between Georgia and the US before the court’s verdict is announced.”

Aside from criticism over economic freedom, the five US congressmen also addressed Facebook’s recent move to shut down a vast network of fake accounts linked to the ruling party, and reports claiming that prosecutors appointed by Georgian Dream had reopened old cases against potential political opponents, as a decline in the country’s democratic values.

Georgia’s domestic politics became turbulent last summer amidst mass protests against the government over its allegedly soft stance on Russia, as well as its backtracking on electoral reforms that would have seen the 2020 general election run under proportional representation. The government was also criticised for appointing Supreme Court judges who have close ties to the ruling party.

As pointed out by Mr Gigitashvili, the latest poll of the US-based National Democratic Institute shows that 59 per cent of the Georgian public does not regard their country as a democracy, with 64 per cent of them assessing the government’s performance negatively. “These figures are much higher compared to previous years and it shows that trust to country’s political institutions is eroding,” he says, underlining that “the key problem is the state capture caused by an increasing informal control of Georgian Dream leader Bidzina Ivanishvili over key state institutions, which undermines the balance between government branches.”

“Most of the key decisions in state institutions are made in favour of certain groups and no longer based on public interest. The government’s recent refusal to switch to a fully proportional system for the 2020 parliamentary elections was an explicit example of this trend,” he stresses.

Responding to the US criticism, the Georgian prime minister said that his government was always ready to discuss such issues with Georgia’s strategic partners.

“Georgia is developing the fastest growing and most stable economy in the region. We will explain this to our friends and colleagues in details, in figures, certain examples and results, which we are achieving together every day,” Mr Gakharia told reporters on January 23.