Georgian economy

Why Are You Against Progress and Economic Development?

Akaki Tsomaia

A widely accepted idea in Georgia is that agricultural land must be owned by the state. Even worse, for many people, the sale of land to foreigners is tantamount to an enemy invasion, the crime of treason or something like that. Moreover, xenophobic sentiments often dominate informal discussions about this issue. This all points to a lack of education. The aim of this article is to argue that such approach, in reality, deprives the country of an additional possibility to create products (and services) and that the sale of land to a compatriot or a foreigner is not an act harming "the country's interests."

Before 26 June 2012, paragraphs 1 and 11 of Article 4 of the Law of Georgia on the Ownership of Agricultural Lands prohibited the purchase of agricultural land by foreigners. If a foreigner inherited any agricultural land, he/she was obliged to re-register that land to a Georgian citizen within a period of six months. The Constitutional Court of Georgia, according to a decision of 26 June 2012, declared this prohibition unconstitutional, thereby rendering the relevant words, paragraphs and articles of the law null and void. Since then, foreign citizens have started showing an interest towards Georgia's lands. Such interest has caused indignation among a segment of Georgia's citizens. Unfortunately, many people in the government, parliament and scientific circles also seem to believe that the purchase of Georgian lands by "foreigners" harms "the country's interests." According to one recent media report, Indian and Arab farmers were showing special interest towards land in the Kakheti region. A segment of the population from one of Kakheti's districts voiced their dissatisfaction that they were no longer able to use some pastures because foreign citizens had taken over that territory. Against that backdrop, a legislative initiative has been drafted and sent to the Georgian parliament for consideration. The authors of the initiative are an economics PhD, Paata Koghuashvili, and two Doctors of Law, Ana Pirtskhalaishvili and Zaur Jinjolava.

"The country's interests" should imply those basic values upon which each and every citizen of Georgia agrees. The frequently used term "the country's interests" is beloved by politicians, scientists and other active representatives of society in their discussions. An action harming "the country's interests" is a very grave accusation and almost amounts to treason. Every person perceives this term in his/her own way. The basic values upon which society agrees may include: statehood, history, traditions, culture, et cetera. How much does the sale of agricultural land to foreigners threaten these values? For example, in 2007, an Italian company, Ferrero, entered the Georgian market. The company purchased 3,000 hectares of land to grow hazelnuts and built two hazelnut processing plants. Another example is an Italian wine firm, Badagoni, which owns a certain amount of Georgian vineyards. Do these two developments contain seeds of treason? Both companies employ up to 1,000 local residents. They have already invested up to 100 million euros in these businesses. Ferrero uses 18,700 tons of hazelnuts annually in the production of its hazelnut chocolate spread Nutella. Georgia is well known as one of most favorable regions for hazelnut growing, but for years the Georgian population failed to export the product because it lacked the knowledge, advanced technologies and standards of growing and processing hazelnuts, which rendered the product uncompetitive. In London, Badagoni's dry red wine "Alaverdi Tradition" received the premier prize, Grand Gold, at the Decanter World Wine Awards in 2010. Winning the Central and Eastern European regional trophy in the category of red wines priced over £10 a bottle was a great result because no Georgian wine had ever received such a prize before. According to information from Badagoni, the Kakhetian Noble and Trioni white wines that were also sent to the Decanter World Wine Awards each received bronze medals and certificates of acknowledgment. In addition to their core activities, these companies make contributions to the construction of bridges, roads and the restoration of churches in Georgia. How has all that damaged the reputation or harmed the interests of the country? Quite the contrary, these companies promote Georgian traditions, culture and history throughout the world. Badagoni is one of the first companies through which the world learned about Georgia as an ancient wine producing country.

Georgia's territory belongs to the citizens of Georgia and citizens of no other country can own it. But a piece of land in Georgia is an ordinary resource, no different from any other production input.

Let's consider another case. Say, for example, a citizen of India wants to buy land in Georgia's Guria region to establish a tea plantation with the prospect of selling this product in various countries of the world. In so doing, tea, which was part of Georgian culture during Soviet times, would become a calling card for Georgia in many countries. Does that conflict with our national interests? If under "national interests" we mean intolerance towards anyone, other than ethnic Georgians, who intends to buy lands and settle in Georgia, then we are dealing with pure xenophobia. Historically, Georgia is a multiethnic country that always boasts about its hospitality and tolerance towards visitors. However, we must also admit that, similarly to many other countries, xenophobic sentiments are not uncommon in Georgia. Things become worse if those sentiments exist within the parliament and government; something which would have a very negative impact on the future of Georgia. I have a suspicion that the opinions on this issue expressed by several representatives of parliament and government contain signs of xenophobia. There is nothing alarming in foreigners buying agricultural land in Georgia. I want to calm down those who fear that foreign capital will wash us away or that large inflows of foreigners will change the ethnic composition of Georgia and hence endanger Georgian culture, traditions and so on. If anyone wants to arrive and settle in Georgia, there are much easier and cheaper ways of doing that. Thus, the fact that the newly drafted amendments to the Law on the Ownership of Agricultural Lands are designed to complicate the purchase of land in Georgia for foreigners does not change the situation much in this respect.

The sale of agricultural land to foreigners thus does not harm our national interests. However, the probability that the welfare of each and every person will improve decreases. The economy is a complex system. An individual's standard of life depends on how well a person succeeds in realizing his/her capacities. For welfare to increase, we should give up something that we have in exchange for something what will increase our benefits even more. If society can be conventionally divided into consumers and producers, the resources (goods, in general) in the free market will be owned by those willing to pay more for those resources; similarly, producers who manage to sell resources (goods) at cheaper prices will be satisfied first. Higher prices are paid by those for whom the resources are worth the most. Thus, those who are willing to pay more than others can use those resources more efficiently, irrespective of their ethnicity, religion, skin color or sexual orientation. A more efficient use of resources means processing those resources in such a way that makes a product more competitive compared to similar ones. The fewer the actors (people, organizations) engaged in the purchase of a resource, the lower the probability of the efficient use of that resource. For example, if a resource is owned only by the state, the efficiency of that resource will depend on how skillfully public servants manage to use that resource. If that resource can be owned by citizens of Georgia who are willing to pay more for that resource, the likelihood of its efficient use will increase. But if citizens of other countries are also allowed to use that resource, it will heighten competition and the economic benefit from that resource will increase further still. The greater the number of people engaged in competition, the higher the value of the resource as well as the expectation for a "sensational result." A sensational result, alongside its economic dimensions, also implies social benefits (for example, the construction of bridges and roads in the case of the Ferrero company or the promotion of Georgian wines in the case of Badagoni), regardless of the nationality, race, citizenship, religious belief or sexual orientation of the actor. Thus it does not matter whether or not the owner of a resource is a foreign citizen; the important thing is that the actor that becomes the owner of the resource is the one who pays more than others. Restriction of the competitive environment in any form will reduce the possibility of the efficient use of a resource. Agricultural land is a resource, just as water, oil, metals, fertilizers, tractors or anything else used to produce goods. A piece of land can be used by Georgians as efficiently as it can be by Germans, French, Indians or representatives of any other country. Why are you against progress and economic development?

The citizens of Georgia will be much happier if resources are used efficiently, regardless of who owns them – a Georgian citizen or a foreigner.

As regards the legislative initiative on amendments and addenda to the Law of Georgia on the Ownership of Agricultural Lands, I think it is an absolutely ill-considered step which indicates the low level of education of the authors. The draft law makes it virtually impossible for a foreigner to buy land in Georgia because each and every paragraph and subparagraph of that draft has been created with this very aim. Even more, the legislative initiative smacks of xenophobia. First of all, a foreign citizen cannot in fact run a business because the draft law allows ownership of only 2.5 ha of land (per household/person) in Georgia; second, only five percent of the agricultural land fund can be held by foreigners. To make things worse, a "foreigner" is required to have lived in Georgia for a period of at least ten years before he/she is able to buy land in Georgia for implementing an economic project. Furthermore, a foreigner is required to have an academic background in agriculture and five years of experience working in the agricultural sector, so on and so forth. The only impression one gets from such wording of the draft law is that the authors are intolerant towards citizens of foreign countries: a clear expression of xenophobia. Moreover, the Georgian legislation prohibits the adoption of a provision similar to that which was abolished by the Constitutional Court as unconstitutional.

Georgia's territory belongs to the citizens of Georgia and citizens of no other country can own it. But a piece of land in Georgia is an ordinary resource, no different from any other production input. The citizens of Georgia will be much happier if resources are used efficiently, regardless of who owns them – a Georgian citizen or a foreigner. Ignorance is not a crime, but the failure of people in parliament and government to understand that poses a very serious problem. In countries where the system is built upon a principle where decisions about who can buy resources, how many, at what price, et cetera, are made by so-called government commissions, the economy, as such, disappears because in such countries no economic principles work. A clear example of that was the Soviet Union.

Why are you against progress and economic development?


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