fugitive peace

Note: these are unedited notes from an interview that I and a colleague held with Badri Patarkatsishvili at his home in September 2002. I can’t vouch for perfect accuracy.

Q. What have you been doing to bring together the business and political community here?

Born and raised in Georgia, lived and worked in different USSR republics incl. russia. When I came and settled about 18 months ago, I had had the experience of transitioning from socialism to capitalism in russia. Since I have my own formula about the lag between Russian and Georgian economic development. The russian experience is an open book for us and we shouldn’t permit the same mistakes to be made here as in russia; they’re two different economic climates for us. We should certainly take into account the success Russia had in moving to capitalsm, and i have my own share in the fact that russia is now in economic revival. That’s why I’m delighted when I hear that the Russian CB’s dollar reserves are increasing, about $46 bn. That is ten times more than seven years ago. That’s a very serious figure for a country like Russia. It should be one of the most attractive markets for Georgia. That’s why I think all political obstacles and mistakes in Georgian-Russian relations should be rectified as soon as possible and it’s absurd for them to have reached this level of aggression. It would be foolish for us to ignore that it’s our neighbour and our products are very well establisehd there; take us decades to establish a niche in european markets. It’s naturally much easier to sell teh brands like Borjomi in former USSR; it will take Europe a while to learn. It’s very appropriate and needed for FDI to come in in Georgia, but this has pluses and minuses. The first factor against it is the unstable political climate. Equally important is internal obstacles and relations between business groups locally. Business here is not united around the one global idea of business. There’s no consolidated idea among businessmen of whether to reinvest profits or send them to offshore havens or to Switzerland. there’s no serious legislative framework for the development of business. There are no business rules that govern their activities. It’s easy to say that we all have our ten commandments and don’t need new rules, but Georgia has idiosyncratic business traits that should be taken into account. Like other Soviet republics Georgia doesn’t have a strategic economic development plan. All WB and IMF recommendations are not being implemented as effectively as if Georgia had a plan. These are all the negative factors that keep FDI out. I’m using all my energy and capabilities to work these things out and move into positive developments.

What’s attractive about Georgia is geographic location. It can be a platform for serious investment for Azerbaijan and Armenia. Being between Turkey and Russia is another huge asset. We also have a long tradition of business and experience that must be used. The fact that there are backward forces like the socialists is another hampering factor. More and more Georgian businessmen are trying to establish a good reputation and fair rules of play with international partners and orgs. A lot of mistakes right after collapse of USSR are being corrected for now that people who left then and got educated in the US are coming back. We should pay close attention to how foreign investors are establishing themselves here. But instead of attracting them, our corruption, untrustworthy courts, instability etc are making them run. we shouldn’t interfere with them. By establishing fair rules of play we could let them work here. Castell Beer invested $35m but eventually had to leave cos couldn’t find a trustworthy partner and encountered obstacles. Because of my efforts to consolidate business we convinced Castell to stay and promised them new guarantees to keep them here. Georgia is a small market, maybe not that attractive, but there are very serious precedents for buying and developing land. If we work in that direction it could attract foreign business. State policies have a lot of room for improvement though. Land rent is very cheap. People get land for 50 or 90 years, do nothing with it, and nobody demands accountability. Now trying to get the law on land put in order. I’ve been speaking to a minister about it.

Political stability is one of the attracting forces, but it’s not the only factor needed. I still think investment in Georgia is more profitable than not. Investor should know he doesn’t have the ability to take quick decisions; he should first acquaint himself more attentively with the business he’s planning to invest in, and he should do much more homework than he would to invest in a Western country. Most important thing is patience. In countries like Georgia with high political risks one criterion for profits is patience.

Q. What would be concretely necessary for a compromise with russia, rather than confrontation?

We have to look at political and economic viewpoint. Taking into account geographical location, attractiveness of Russian market for various reasons, Georgia should find any compromise not to lose the Russian market. Politically, main idea Georgians have fought for for decades and experienced so many hardships for is the struggle for freedom. No economic revival will substitute for that idea. So i believe that everything should be done for us not to lose our freedom, stay as a sovereign state that will promote democratic principles and integrate itself into the world community and establish the values by which American and Europe live. These are fancy words but it needs serious work. If we find the comrpomise with Russia politically, it will be beneficial for Georgia in the long run; but it will not be in return for losing our sovereignty.

Q. Can there be normal relations Russia-Georgia while Shev is in power?

I don’t want to politically analyse this statement. One of the factors of the dislike between the countries is Shev. He’s very disliked by reactionary political forces in russia. “Reactionary forces in Russia are presenting a painted picture for Putin that makes him act the way he does towards Georgia and take such heavy decisions as he does.”

Q. How to get a different picture before Putin?

I definitely see a connection between America’s desires in Iraq and Putin’s relation to Georgia. There is some common ground between those two cases but it’s not the only factor that determines Russian aggression. Many Russian politicians lack the political education cos there were practically no politicians in Russia ten years ago. It’s very hard for them to combine professionalism and democratic principles. They often make serious mistakes that sabotage the history of good relations with Georgia. That’s why one way out is the support of the West, in order not to let this relationship escalate. Based on my extensive experience in Russia, I can tell you very precisely what Russians feel about it. It’s 180 degrees from the political sentiment, from those politicians who are very radical towards Georgia. I’m absolutely sure that in the whole of the Caucasus Russians like Georgians the most. Likewise, Georgians have a very warm attitude towards Russians. So we don’t have the right to sacrifice the welfare of our country for the egotistical aspirations of politicians. But I still have to say that my economic ego is very pronounced and I want countries to pay more attention to this.

Q. Do you see yourself as a political figure, or just business?

Alas, in all former Soviet countries it’s practically ipossible to separate out politics and economics completely. I’d be delighted if it were possible but it’s very hard to achieve. So whether I want it or not, we Georgian businessmen should participate in political decisions that will bring prosperity and investment to Georgia.

Q. What kind of decisions?

We’ve already managed to integrate small and big businesses on the tax system. We should specifically participate in establishing legislative framework to help regulate business and one of the main things that should be created is the idea that the state machine is serving the development of business, not the other way around. Unless we create a programme that the govt is hired by the people, then we’ll have the same problems.

Q. Best model for political-business relations - Volski’s RSPP as in russia, or a political party?

I have lots of experience in Russian business, but whether I wanted it or not I was integrated closely in the political elite. I understand all pluses and minuses of that model very well. The model itself is good but unfortunately it serves political interests more than economic ones. That’s why if we implement the same model in Georgia it should be oriented to serving economic interests more than political ones. Georgia would revive economy faster if it stays less politicised. We need an institution here that would ensure a clear difference between economic and political spheres. Eg, a prime minister, who would be totally accountable for economic processes implemented in the country and not just an addition to political governance that the president administers. President would be freed from the burden of being responsible for both politics and economics. Shev is such a big politician that he should not be interested in taking a close look at economic processes, only at global environment.

Q. Are you actively developing business interests in Georgia?

Ive been trying to learn Georgian economics, and the different spheres and natural resources that Georgia has, and the feasibility and credibility of all that. The first thing that should be done is create a programme to fight corruption. Second create a strategic economic development programme. Today, if someone brings $3m of investment to Georgia he needs a Georgian partner with 10-20% share who will have a personal interest in promoting it and making it successful. A businessman in Georgia who will support and stand by this kind of investors - we have them though not many. But when an investor like Castell comes, who plans to bring in hundreds of millions he also needs a partner who will work in conjunction with him; the kind of people who can do that are very few. So I am waiting for the time and opportunity to bring serious investors and be able to stabilise their risks. That’s the programme I’m working on to develop. I’m also participating in other smaller-scale projects. I think that it’s very hard for heavy industry to develop here. That’s why I regret all the obstacles to air industry. But we have a tradition in light industries like agriculture and tourism that can be seriously developed. Five or six years ago I bought a textile factory which was practically destroyed and people working there were totally demoralised, and equipment was disintegrated. It was practically bankrupt. I’ve achieved all the responsibilities i took on myself when i bought it. invested $6.5m in it. Today there are a thousand employees. Production today is 42km per month of fabric. By 2005 we will have big profits, to reach 72km per month. It’s about $7m turnover per year. I have contracts with shepherds from whom I buy wool; we have the means for processing in the factory; brought in Italian sewing machines to create the final product. If we create the distribution network we’ll end up with a vertically integrated industry to start reinvestment in Georgia to serve the development of light industry in Georgia.

Media interests too: I worked on the first russian channel. I was one of the owners of TV6 until recently. Remains an owner of Nezavisimaya Gazeta, Novaya Gazeta, Media House? family of publications; also working on development of media businesses in Georgia. Created a similar Media House in Georgia. Created a radio station, now a year old, and plan to update television to cover 75% of Georgia. I’m also participating in the business of sports. Luckily I’m also owner of one ofthe most serious football clubs, Dynamo. I’m hoping that this will mean economic development. I’ve created the foundation that helps the Georgian Olympic committee. Invested some serious money in that. Emotionally Georgians today lack the sense of hope in the future and they miss the sense of victory. That’s why sport is important for strengthening Georgian people.

There’s also not a bad institute for entrepreneurship in Georgia and businessmen here haven’t realised how serious this is. I also try to promote it by my own example. It would be very good if they take after me and start entrepreneurship.

Q. Is there enough of a financial system here to help entrepreneurs?

For that, entrepreneurship itself should help the development of financial resources. No such thing as adequate resources. It’s just up to the person to share his loaf with others. We have to create this attitude. There’s always the question of whether anyone is filling out tax forms. In developed countries this question is absurd, but for Georgia, because people don’t have adequate education or experience on how to run the country, they think that for them to pay taxes the state should ensure their prosperity, infrastructure, social programmes etc. That’s understandable, but it’s a chicken and egg dilemma. If we wait for the state to be ready to carry out its responsibilities we won’t be able to develop economic potential. We should make it easier for businessmen to pay taxes than avoid them.

Q. Do you agree Georgia has the best legal framework for entrepreneurship?

Can’t compare to other Soviet republics, but compared to Russia: in Georgia it’s taxed at every single level and that’s not very good, unlike in Russia. There it’s taxed but not in the way it is in russia.

Unfortunately I’m not as busy as I’d like to be. I haven’t given interviews to anyone for a long time, except a year and half ago to Kommersant, my own newspaper, to show my vision of the situation around me. Practically this is the first interview I’ve given to some of my favourite publications. Unfortunately Georgian journalists don’t understand freedom of the press well and think they can say anything about anyone in a way that violates individual freedoms.

Meeting now with Israeli ambassador. I try to bring in business from all countries, but I block their entry until ‘Im sure that all conditions and guarantees that should be given to investors are in place.