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Commending the nation’s five-hub concept, he said: “The regional hub concept is a highly appropriate one. Georgia also thought along those lines. You are a small country with a small population and in many aspects we are more or less the same. The regional hub economy concept that basically transfers Sri Lanka to a country that is open will serve as an ideal place for domestic and international businesses.”
“The five hub concept will not only allow other economies to plug into Sri Lanka for the sake of serving the domestic market, but will also allow the region to be used as a stepping stone to gain access to the neighbouring countries,” Gvindadze told a fully-packed audience at which Minister of Economic Development Basil Rajapaksa, Central Bank Governor Ajith Nivard Cabraal, Ministry of Finance and Planning Secretary Dr. P. B. Jayasundera, and Ambassador of Japan to Sri Lanka Nobuhito Hobo were also present.
Having opined that the public sector of the nation has a lot of positive energy, Gvindadze stressed the need for counties such as Sri Lanka and Georgia to keep up with the global trends to lure investors. “Global investors are in search of destinations and are faced with so many options. There is high competition for this market share and without appreciating the global tends it is very difficult for the public and the corporate sector to succeed,” he noted.
Gvindadze pointed out that the regional hub concept has worked reasonably well for Georgia since when taking into account the performance over the past nine years, the country is noted to have achieved high growth rates and had managed to cope with the global credit crunch.
“We had small imperfections in 2009 but from 2010 onwards we managed to sustain the resilience in the corporate and banking sector,” he expressed in confidence.
Current scenario in Georgia
In terms of ‘Ease of Doing Business,’ Georgia was ranked in the 137th position in 2004, but today stands at the 9th position, whereas in the Economic Freedom Index, it moved from the 78th position to the 21st. Having a sovereign rating of BB-, Gvindadze shared that some of the banks have moved a notch higher.
GPD which used to be US$ 4 billion is now US$ 26 billion dollars, with an average economic growth rate of 7%. The Government revenue as per GDP which used to be 16% is 29% as of 2013 and the Government debt to GDP which was 54% has reduced significantly to 32%.
Having highlighted the improvements made by the country over the past nine years, Gvindadze said that there are many aspects of the global environment in favour of emerging developing countries. According to him, five years ago before the global credit crunch, investors were on the lookout for AAA rating countries. This is no more the case since, due to the slow pickup after the 2009 recession, the pace of growth sustained by the developing nations is 4-5% higher than that of advanced economies.
“While this sets in motion the level of expectation, it is important to realise that when looking at the liquidity base in the international setting, the GDP of developing countries has outstripped the cumulative GDP of advanced economies,” he stated.
Gvindadze explained that after the crisis, emerging countries have gotten involved in many projects that have allowed them to achieve significant growth rates. This achievement has resulted in the frontier between advanced and developing economies being no longer visible.
Few challenges faced
Touching on obstacles faced by Georgia when it was striving to achieve a better economic outlook, Gvindadze pointed out that the major challenge faced was the transition. “The economic transition was difficult in a political sense since we had the civil war and the pace of the transition we saw in the beginning was huge. We had to move fast because the expectation from the country was high,” he noted.
Gvindadze shared that the second challenge was the creating of a mental framework. “No matter what we did, we had people saying it was something that was achieved previously. The people were not easily satisfied and wanted more and more growth and improvements in the economy.”
Pillars of economic positioning in Georgia
Gvindadze outlined three pillars of economic positioning in Georgia, of which the first is the sovereign balance sheet.
He explained that in a global level, general government expenditure against GDP for developing nations is on average 60% whereas for advanced economies it is around 25%. “If you place the real GDP on the x-axis of a graph and the size of the general government on the y-axis, an inverse correlation will be noticed. This means that an increase in the size of the government will lead to a slowdown in economic growth,” he explained and added that if the government expenditure is about 40-50% of the GDP, the public sector will outstrip the private sector.
Sharing measures taken by Georgia to keep this aspect under control, Gvindadze said that when the public expenditure ratio was approximately 50%, the country was keen on making a “smart” move since it had few structural problems at the time. After several debates, the country introduced 30% as the upper mark for public expenditure and was committed to staying within this level even if new reforms were proposed.
Another aspect highlighted was the allocation of 27% of the total budget for capital infrastructure. “This is much higher than any other country. If you look at our infrastructure projects, we focus most on improving our roads, power sector and water sanitisation.” Gvindadze elaborated that one of the pioneered approaches was to single out one city every year to beautify its facets and improve the infrastructure situation.
“The very moment businesses start penetrating into those cities and investments are made, most of the problems of these cities will be addressed. That has been an approach that has been making wonders in the country,” he expressed.
Gvindadze also stressed the need to develop the capital market in the country. He professed that by developing the capital market, the sovereign yield curve would develop. “To shift from the universal financial system, you are going to need to invest millions of dollars unless you have your domestic capital market in place. It is a very technical issue but it is very important since many investors question the situation of capital market development,” he said.
Listing the second pillar of economic positioning as having a stable financial sector, Gvindadze pointed out that in Georgia it has been privately run since 1995. According to him, there has been no intermediation and interaction from outside the State. He stressed that the Central Bank is highly independent of State control and is tasked with ensuring 
price stability.
While the financial service sector continue to expand, he noted that capitalisation in the banking sector remained high, whereas the capital adequacy ratio, which is of 25%, exceeded the minimal Basel requirements. Pointing out the high dollarisation level, which hinders the effectiveness of the monetary policy, as a significant feature of the financial system, Gvindadze shared that the National Bank of Georgia is focused on continuing to improve its legal and regulatory framework.
In addition to this, he noted that the Parliament amended the Law on Activities of Commercial Banks, allowing them to engage in additional types of banking activities, such as providing payment services, operating payment systems and acting as a settlement agent.
Listing the third pillar as the business environment, Gvindadze stressed that the major premise which has been driving the country is its investors. “Investors come to Georgia because it is crime and corruption free, and the environment created here allows them to execute their business in an easy manner,” he said.
Gvindadze noted that aside from liberalising certain sectors of the economy, regulations are qualified at a constitutional level. “Setting up a business in Georgia is relatively easy since all the processes are made convenient. If you look at the trend from 2005 to 2011, the country has displayed the best progress in terms of bringing investors,” he stated.
Adding on to the convenience offered, the country which used to have about 21 types of taxes, now has only six types. Social and wealth taxes had been abolished along with other taxes levied by various institutions.
Furthermore Gvindadze pointed out that while Georgia is one of the most open countries for foreign equity ownership, all of its 33 sectors covered by indicators are fully open to foreign investment. He added that there are no perceived difficulties in obtaining any required operating licenses.
Georgia is also amongst the fastest countries in the world in terms of establishing a foreign owned limited liability company with only four procedures, which take no more than four days to complete.
Pix by Lasantha Kumara
