Private sector and human-resource development in Georgia

Conclusions and Next Steps. There is a general agreement within Georgia that the existing environment for investment needs to improve if the country wishes to attract new FDI flows and secure the expansion of existing investments. This report has focused on the principal administrative barriers that increase the cost and risk of doing business in Georgia.

Pervasive corruption and the apparent lack of political will to implement reforms have emerged as two fundamental issues affecting the business environment in Georgia. While the degree of corruption may not be the worst in the region, it has a negative effect on business activity and increases the risks and costs of doing business in Georgia. The process of streamlining and simplifying administrative procedures must go hand-in-hand with anti-corruption programs. In a similar vein, it should be noted that number of reforms (e.g. Customs reform) have been stalled as a result of resistance to change and the apparent lack of political will effect change.

In addition to making recommendations for solving some of the regulatory, administrative, and institutional issues that need to be addressed in order to improve the business environment in Georgia, the report points out the areas where further review is necessary and where significant technical assistance is already being channeled, albeit with limited impact.

The experience of other countries clearly demonstrates that sustainable change cannot be achieved without government commitment at the highest political levels.  Successful and sustained change requires leadership, strong champions, and shared goals among all stakeholders within the government and the private sector. On the basis of shared goals,  the process of rationalizing, streamlining, and simplifying bureaucratic procedures can develop, gain momentum, and improve the values of government agencies and transform them into service-oriented organizations. A comprehensive approach to change is necessary, and commitment and time are essential ingredients. Procedural and institutional reforms will require the support of public servants at all levels of government, plus their support for changes in the systems of performance monitoring, evaluation, and rewards.

The Presidential Commission on Support of Private Business already exists as a champion of this initiative. However, the framework for the change agenda must include the participation and inputs of stakeholders at all levels. Stakeholders must be drawn from the public and private sectors. In addition, there is a role for the international donor community in this framework since the incorporation of related donor-sponsored initiatives must be integrated into the change agenda. Chapter V of the report proposes a framework for the development and implementation of the change agenda.

The institutional structure to support the change agenda should include:

·        The Presidential Commission. The Commission should serve as the focal point of the change agenda and it should be given the mandate to promote and advocate reforms in collaboration with other parts of the Government.

·        An implementation team. The staff of the commission’s secretariat should constitute the core group of the implementation team. The responsibilities of the team would include the development of the Action Plan, coordination of implementation activities, solicitation of donor funds and resources to support reform, coordination of related initiatives, and regular reporting on progress to the Commission.

·        A consultative committee. The committee should provide a mechanism for regular consultation with a broad group of stakeholders on various reform initiatives.

The above - mentioned Action Plan should be utilized to document the agreed-upon changes, establish priorities and timeline, provide a basis for accountability, and keep an ongoing record of progress. Therefore, it must be emphasized that the Action Plan is not a static document but one that must evolve over time.

Law of Georgia "On Investment Activity Promotion and Guarantees". On 12 November 1996 the Parliament of Georgia adopted the law of Georgia "On Investment Activity Promotion and Guarantees", which replaced the Law of the Republic of Georgia "On Investment Activity" adopted on 10 August 1991 and the Law of the Republic of Georgia "On Foreign Investments" adopted on 30 June 1995.

The Law defines the legal bases for realizing both foreign and local investments and their protection guarantees on the territory of Georgia. The purpose of the Law is to establish the investment-promotional regime in Georgia.

Investments. Investments shall be deemed to be all types of property and intellectual valuables or rights invested and applied for gaining possible profit in the investment activity carried out in the territory of Georgia, such as:

a)      Monetary assets, a share, stocks and other securities;

b)      Movable and immovable property (real estate) - land, buildings, structures, equipment and other material valuables;

c)      Lease rights to land and the use of natural resources (including concession), patents, licenses, know-how, experience and other intellectual valuables;

d)      Other property or intellectual valuables or rights provided for by the law.

Investor. An investor shall be deemed to be a physical (individual) or legal person, as well as an international organization investing in Georgia. A foreign investor shall be deemed to be:

a)      A foreign citizen;

b)      A stateless person temporarily residing on the territory of Georgia;

c)      A Georgian citizen permanently residing abroad;

d)      A legal person registered beyond Georgia.

An enterprise with a foreign investment of not less than 25% shall enjoy the same rights as the foreign investor.

1.3.2        Foreign Investment Advisory Council (FIAC)

In order to assist foreign investment inflow into Georgia, improve investment climate in the country and support private sector development, it became necessary to create a special government agency, which would serve the above-mentioned goals. Therefore, on March 30, 1997, according to the presidential decree N87, Foreign Investment Advisory Council (FIAC) was created under the supervision of the President of Georgia, intended to assist the development of the private sector and improve the investment environment in the country, to coordinate donors and donor financed projects, to monitor these projects and to ensure a transparency and accounting of foreign aid inflow into Georgia.

The Investment Council operates through its secretariat, which is responsible for the fulfilment of the responsibilities assigned to the Foreign Investment Advisory Council. The Secretariat of the Investment Council works in three directions:

Prepares the Council's meetings;

Cooperates with the donors and coordinates the donor financed projects;

Assists the private sector.

Preparation of the council's meetings. The secretariat of the council plans, prepares meeting and monitors their procession. The meetings are preceded by a preparatory phase, during which the Secretariat identifies priority issues, gathers relevant information, processes, analysis it and identifies a range of possible conclusions. One of the responsibilities of the Secretariat is to control the fulfilment of assigned works and appraise their compliance and produce relevant recommendations.

Cooperation with the donors and coordination of the donor financed projects. Activities related to the cooperation with donors and coordination of the donor-financed projects are a part of the Secretariat's daily job. The Secretariat of FIAC conducts permanent monitoring and control of the projects. Among the donor related activities, a notable obligation of the FIAC Secretariat is to identify the strategy of cooperation with the donors and direct flow of further assistance to relevant channels and to target further projects. Daily work of the FIAC Secretariat includes collection of information on problems related with investment projects and identification of ways of their solution. The council cooperates with short term missions of donors, organizes meetings, drafts agendas and prepares background information for topics of discussion for the Government members as well as for the President of Georgia. The FIAC Secretariat actively works on elaboration of financial-economic, and particularly international relations related legislation of Georgia.

Private sector related activities. To fulfil this obligation the council works in few directions. According to the presidential decree N1324, a Presidential Commission on Support of the Private Businesses in Georgia was formed in the year 2000. By means of close cooperation of the Commission and FIAS, it became possible to study all administrative barriers to investment (see above). As a result, the problems impeding the development of business in Georgia were identified. On the basis of the results of this study, the recommendations were drafted and action plan was compiled, which was approved by the president of Georgia. The commission of cooperation with investors conducts permanent monitoring of fulfilment of the action plan, appraises its fulfilment and prepares relevant recommendations. The Secretariat of Foreign Investment Advisory Council actively cooperates with other donor organizations in terms of the private sector development projects.

1.5  Tax Regime

1.3.3        Taxation System and Tax Rates in Georgia

Legal Framework. The Tax Code of Georgia, adopted on June 13, 1997,[2] is the principal law on taxation policy and administration. Other legislation that regulate taxation include the Administrative Offences Code, the Criminal Code, bankruptcy legislation, customs legislation, the Law on the Road Fund of Georgia, and the Law on the Medical Insurance Fund of Georgia.

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