A disputed norm, which was declared unconstitutional in late June, prohibited foreign citizens from purchasing Georgian agricultural land. Moreover, it also created problems for former citizens of Georgia, who (under the terms of that norm) had to sell their own land within a period of six months because they had citizenship in another country or failed to register their property.
In plaintiff Heike Cronquist’s view, the law restricted her constitutional right to purchase property. Moreover, the norm was discriminatory for putting her in an unfavorable condition compared to Georgian citizens, That, she said, was a clear violation of the Constitution of Georgia, which states: “Foreign citizens and stateless persons residing in Georgia shall have the rights and obligations equal to the rights and obligations of citizens of Georgia with exceptions envisaged by the Constitution and law.”
Existence of such exceptions was not clear for the Constitutional Court. According to the Constitution, the property right, including the right to purchase or sell assets, is guaranteed for any person irrespective of their citizenship. The Constitution further provides that a foreign citizen who establishes an enterprise and then registers as a hundred-percent-share owner of that enterprise can buy such land freely.
The prohibiting provision was adopted by the Parliament in 1993. It was justified at that time by the need to protect the market. Because of the situation then existing in the country, peasants who had received plots of land without any charge could sell them to rich foreigners, receive a one-time gain and stay in the country thereafter without means for existence.
The Constitutional Court ruled that that norm did not protect the market interest and, even more so, complicated implementation of that task.
First, that norm harms not only foreigners willing to buy agricultural land but also local citizens who are interested in, say, selling their own land for a higher price. If the state actually fears that peasants will sell their lands and then the state would have to maintain them, it is not clear why the national origin or citizenship of the seller should matter. If a peasant wants to sell land, he/she will sell it anyway. Moreover, theoretically, a peasant would sell land at a lower price to a buyer who is a citizen of Georgia and is better aware of local market prices. In the case of lesser proceeds from the sale, the state would have to start maintaining such peasants earlier.
Secondly, legalizing such artificial barriers restricts competition on the market artificially. New actors cannot enter the market, even though they may bring with them new expertise and innovative approaches and thus help the field develop.The increase in competition would improve the operation of the land market. A well-functioning market is crucial for the increase in productivity of this sector and overall economic growth.
In a developing country such as Georgia, the distribution of existing land is far from optimal when it reduces the economic efficiency of those lands. If the land market were to create an opportunity that would allow that land instead of being held less-productive peasants to be obtained by farmers who would cultivate the land better and receive more benefit, then the efficiency of the entire economy would grow too.
Further, with the increase in the demand for land, the price of land would also rise. That means that loans in this sector would become cheaper and, with increased investments, the productivity would go up too.
An open market where anyone can easily sell and purchase land provides an opportunity for unproductive people to exist in the agriculture sector, where they might have found themselves accidentally, and to try their abilities in any other field.
And finally, an open market will attract investments more easily, thus contributing to the improvement of economy and general welfare of the population.
In terms of attracting investments, the agriculture is one of the least productive sectors. The first quarter of 2002 saw an investment of USD 5.6 million in this field. That comprises a mere 2.08 percent of all investments in the same period, standing at USD 269.4 million.
This article first appeared in Tabula Georgian Issue # 108, published 9 July 2012.