A year ago Georgia’s then Justice Minister Mikhail Saakashvili told Parliament that luxury homes constructed for ministers and senior officials worth more than $200,000 should be confiscated. (Top pay for these ministerial positions is around $500 per month.) President Eduard Shevardnadze refused to go along with this idea, defending the principal of innocent until proven guilty. Within a few weeks the Justice Minister resigned.

A few months later an opposition television station was raided by tax inspectors, followed by passionate anti-government demonstrations. Close Shevardnadze ally, Interior Minister Kakha Targamadze, was said to be responsible for the raid. Populist political leader Zurab Zvania vowed to resign from his post as Speaker of the Parliament to get rid of the Interior Minister. Both resigned last November.

The main domestic political issues remain corruption and the related failure by the State to collect taxes and provide essential services. The government official closest to this problem, Minister of Finance Mirian Gogiashvili, estimates that the state budget of around $500 million should have revenues closer to $1.5 billion. Of course this impairs the Government’s efforts to put in place strong regulatory bodies, to pay government employees wages which might discourage corruption and slows the process of transition to a market economy. The weak public governance is also a major disincentive to badly needed foreign investment.

At the same time at least six major political parties, and numerous smaller entities, compete for the allegiance of Georgia’s voters. The country has a flock of daily and weekly newspapers, many of which have no hesitation to report on scandal and government weakness. The TV channel mentioned above and subjected to the government raid maintains a vigilant watch on the government and politics. There is clearly a vibrancy in the Georgian political process.

On the other hand for those who might have hoped for a rapid transition to a strong private sector economy with the demise of the Soviet Union and socialism, Georgia is not a good example. Many new
businesses have formed, some people are making money and many are benefiting from the shadow economy. But a well-regulated capitalistic society is going to take time.

Bright areas of economic potential include agriculture (with much effort being devoted to creating “value-added products” such as canned fruit, development of new uses for old staples like walnuts and much success already being seen in the wine industry), tourism (with visitors doubling every year) and the transit of oil through the Georgian “silk route” corridor from Azerbaijan and Central Asia.

There are opportunities for foreign investment but the prudent participant will first find a strong and savvy local Georgia partner. And will have patience.