On 12 September 2007, the America-Georgia Business Council was held at Courtyard Marriott where the Prime Minister Zurab Noghaideli gave a speech.
Ladies and Gentleman, Dear friends, Distinguished guests
First of all let me extend my gratitude to AGBC, personally to Mr. Mamuka Tsereteli and everybody else who has taken part in organizing this meeting.
I would also like to thank our guests for extending interest to Georgia.
Before discussing our economic reforms, however, let me discuss some early political reforms that were successfully implemented in Georgia after the revolution:
POLITICAL REFORMS
AGAINST CORRUPTION
From the very beginning we started fighting against corruption.
We downsized the public sector, replacing a "heavy" bureaucratic apparatus with one that is smaller and more flexible
Only 13 ministries were left out of 18
And the number of public sector employees has been reduced by 50%
Staff reduction was not our principle goal.
Our goal was to eliminate every unnecessary interaction between public and private sectors (businesses), and thus to reduce the opportunities for corruption.
It's working... Study, conducted by EBRD and the World Bank on "Business Environment and Enterprise Performance Survey", showed that Georgia is a leader in eliminating corruption and removing barriers to the business development...
And 95% of Georgian citizens surveyed by the International Republican Institute in February 2007 reported they hadn't paid a bribe to receive a public service in the past 12 months.
POLICE REFORM
We reformed our traffic police . . .
Our reforms of the traffic police freed Georgian drivers from roadside shakedowns by corrupt cops who demanded bribes.
The reform was very painful in the beginning - we dismissed entire traffic police force and rebuilt it from scratch.
For two weeks - before drafting the new staff - there was no traffic officer on the road.
Today, however, our officers are well trained, well equipped, well paid and most important of all - they are held accountable to and by the public.
EDUCATION
In education - we wiped out an entire generation of corrupt practices - including the old national examination system, which in the past denied a fair education to our nation's young people.
By instituting competitive national testing - and by restructuring education finance - the system is truly one where merit, rather than payoffs count ...
... And where young generation, no matter where they come from, can finally trust that their talent is enough to secure their future.
JUDICAL SYSTEM
In the field of judicial system we are launching deep and comprehensive reforms.
The White Paper for Criminal Justice Reform Strategy was approved by the President of Georgia in 2005.
We continued our reforms to insure enforcement of commercial contracts.
Last year we amended our Procedural Code - introducing specialized commercial sections of the courts and reforming the appeals process.
The time to resolve the simple commercial disputes fell from 375 to 285 days.
ECONOMIC REFORMS
Now, let me address the Economic and Fiscal reforms that have radically improved our business environment and made us the WORD'S NUMBER ONE REFORMER.
TAX REFORM
A new Tax Code that entered into the force on January 1, 2005 reduced both the number of taxes (from 22 to only 7) and tax rates:
- VAT was reduced from 20% to 18%
- Social Tax - from 31% to 20%
- Personal Income Tax - from 20% to 12%
Estimated tax burden to GDP decreased by 5 percent . . .
Tax regime offers other benefits to entrepreneur: ambiguities are clarified, 100 % amortization rule is introduced, VAT is refundable on investment, etc
Reductions in tax rates, coupled with improved tax administration have resulted in dramatic increases in tax revenues, which have increased by 2.6 times from 2003 to 2006.
ABOUT ESTABLISHMENT OF REVENUE SERVICE
We have established unified Revenue Service of Georgia.
This is another step forward for simplification of procedures related to tax administration and reducing bureaucratic barriers.
Now, an entrepreneur has only ONE SINGLE governmental agency to declare and clarify issues related to its business activities.
NEXT STEPS IN TAX REFORMS
From the next year we plan to carry out next steps towards simplification of the Tax Code.
From 2008 Profit Tax will be reduced from 20 to15%.
Payroll Taxes, consisting of Social and Personal Income taxes will be merged and the average weighted tax rate reduced to 25%.
This means that another portion of tax burden (around 1.5% of GDP) will be removed from businesses
In addition, we are working on implementing electronic filing of tax returns.
TRADING ACROSS BORDERS
We are following Unilateral Trade Liberalization policy. Almost all customs tariffs on all imports have been abolished except on agricultural products and construction materials.
New Customs Code, in harmonization with the European Union standards, entered into force from January 1, 2007...
We have simplified the bureaucracy that once strangled both imports and exports cutting documentary requirements by more than half.
We've also slashed the time required to import from 52 days in 2005 to 15 in 2006 down to only 4 days this year.
Days to export went from 54 in 2005 to 13 days last year to only 5 days this year.
STARTING A BISINESS
We have also significantly simplified procedures for business registration merging business and tax registration into one simple process that takes 3 days instead of 10.
The minimum capital requirement for LLCs' has been reduced by 10 times.
LICENSES AND PERMITS
In 2005 we adopted a new law on Licenses and Permits. The total number of licenses and permits has been reduced by 85%. Only 86 licenses and 50 permits were left.
We also introduced time limits for government agencies to respond. If no action has been taken within 30 days for licenses and 20 days for permits then, under our new "silence is consent" policy, the application is deemed granted.
We have significantly simplified procedures related to construction activities:
- Documentary requirements have been decreased
- Number of steps required for the entire permitting process reduced from 17 to 9
PROPERTY REGISTRATION
The process of property registration was also simplified
We've reduced the time and expense required to register property by eliminating mandatory notarization of property transactions.
CLOSING A BUSINESS (law on bankruptcy)
The parliament of Georgia adopted new law on bankruptcy.
... All business makers acknowledge high importance of that regulation.
Our new law on bankruptcy drastically reduces the time required to conclude insolvency proceedings from years to months, and gives secured creditors more influence over the process.
The time required to close a business drops from 3.3 years to less than 5 months. Cost of the proceedings will fall from 3.5% to 2% of the value of the estate, while the recovery rate will increase from 27.5 to 84.7 cents per dollar.
PROTECTING INVESTORS
Also, there are changes to our Law on Securities Market that protect minority shareholders against conflicts of interest and self-dealing by company officers and majority shareholders.
Persons with conflicts of interest are prohibited from participating in any vote on the transaction in which they have an interest.
Information about the conflicts of interest must be provided to shareholders and disclosed to the public.
LABOR CODE
In 2006 Georgia adopted new liberal Labor Code that eliminates Soviet-era burdens on the freedom to contract, and makes the cost of hiring and firing workers very low.
No mandatory minimum wage requirements are introduced and no obligatory overtime costs are implied.
BANKING
To encourage Financial Intermediation, we have amended our Law on Commercial Banks and Law on Securities.
Now, foreign banks with a rating of A+ or higher will be able to enter the Georgian market without national regulation.
We have eliminated a prohibition against one person owning more then 25% of a Georgian commercial bank.
Dealing with securities will be also possible without Stock Exchange Market and Brokers
In addition, there are NO RESTRICTIONS on CAPITAL FLOWS in Georgia.
Recently, FITCH RATINGS' SOVEREIGN RATING COMMITTEE assigned Georgia "BB-" with a stabile outlook. The rating is underpinned by the country's moderate and declining public debt burden, rapid GDP growth rate, an impressive record of structural reforms, buoyant FDI inflows and strong international financial support.
ABOUT ENERGY ISSUES
In the electricity/power sector we have re-invented Georgia - literally speaking the country from darkness to light - and bringing industry from a standstill to active output and investment.
Two years ago, 85% of Georgia's population outside of Tbilisi, was subject to daily power outages. Today 98% of paying customers outside of Tbilisi have 24 hour power.
The last winter was the first when Georgia not only met its demand for electricity, but also exported electricity in the neighboring countries.
ABOUT INFRASTRUCTURE REHABILITATION
No economy would grow without adequate infrastructure...
We are completely rehabilitating the road, water supply, sanitation systems etc. throughout Georgia.
MACROECONOMIC PERFORMANCE
As a result of successful reforms we are enjoying rapid economic growth and high volumes of FDI inflows.
Let me shortly give you a brief overview of Georgia's macroeconomic performance:
Last year GDP grew by 9.4% and this year we expect 12 to 15% real growth.
The current year has begun very successfully:
- In the 1-st quarter real GDP growth was 11.4%;
- In January-August General Government mobilized 43.5% more tax revenues in comparison with the same period of 2006;
- About 37 thousand NEW ENTERPRISES have been established since the beginning of 2007, which from the other hand means new jobs and higher salaries;
- In 2006 poverty indicator has been also reduced and around 40 thousand of Georgian citizens moved out of poverty.
Since the Rose Revolution GDP cumulative growth is 30% in real terms. GDP per capita almost doubled during this period...
What is the most important, economic growth is diversified among economic sectors and most of them contribute to GDP growth with two digit growth rates.
These are: Banking Sector, Mining and Processing industries, Trade, Transport, Communications, Construction, Hotels and Restaurants, Healthcare.
Georgia has an unprecedented inflow of FDI! In 2006 FDI grew by 165% in comparison to 2005 and tripled in comparison to 2003 (reaching 15% of GDP)...
In 2007 our expectations are additional US$ 2.5 billion FDI inflows to Georgia that will be about 25% of GDP!
In the 1-st quarter of 2007 FDI inflows increased by 96% in comparison with the same period of 2006.
One digit level of inflation and stabile National currency are additional factors promoting overall economic growth...
Generally speaking, the economy's rapid growth provides a favourable backdrop for creditworthiness by boosting living standards, tax revenues and the government's popularity, and reducing debt ratios.
CURRENTLY ONGOING AND FUTURE REFORMS
With the same or even more intensity we are running and plan to carry out reforms in various fields of Economic and Social directions.
Let me briefly introduce you with our ongoing and future plans:
HEALTHCARE REFORM
We are almost to finish reforming healthcare system
Within 2 years, Georgia will have 100 new and modern hospitals with 7800 hospital beds, which is absolutely optimal for Georgia's population.
90% of our population will be within 30 minutes of hospital services.
In addition, our healthcare licensing system will be streamlined, with the number of healthcare facility licenses reduced from more than 40 to 4.
100 NEW AGRICULTURAL ENTERPRISES
Recently we launched a program for establishment of 100 new agricultural enterprises
Agriculture is the second largest sector in Georgian economy and significant part of Georgian workforce is employed in Agricultural sector.
ELECTRONIC GOVERNMENT
Recent amendments to our Tax and Custom Codes authorize electronic transactions between government and its citizens.
We are putting the finishing touches on a new e-signature law and plan pioneering initiatives in which the government informs, interacts and transacts with the private sector online.
WATER SUPPLY AND SANITATION
We are starting reforms in Water Supply and Sanitation Sector...
The Ministry of Economic Development of Georgia and Tbilisi City Hall jointly announced expression of interests on sale of Zhinvali Hydro Power Plant, Tbilisi and Mtskheta Water Supply Systems and Cleaning Facilities of Gardabani Sewerage System.
This means to have an effective water utility management, to create a strong policy environment and attract sufficient investments...
...And finally, to provide Georgian citizens (and not only) with safe and healthy water.
PENSION REFORM
Pension Reform plays a very important role among our future plans. Today, we have pay-as-you-go pension system. State pays some fixed amount to retirees (which by the way almost tripled for last 3 years).
For young generation we are considering to introduce voluntary, investment based private pension system - where each individual voluntarily decides how to spend his/her personal earnings - spend it now or put some part of it on her personal pension account.
This is a very long term process and results of the reforms will be visible after some 20 or even more years.
CONCLUSIONS
Well...let me conclude my speech today.
Let me once again thank you for giving me an opportunity to be here, with you today; for your time and attention.
From the other hand, I'd like to underline that the Georgian government is not allowing itself to relax on the things it has already reached...
We clearly understand that this is only beginning...
We still have many things to do... This is our challenge that we have to overcome...
...but the basis, that was so necessary for this short period of time to start building a developed country is very strong and promising...
Successful reforms, strong commitment from the President and Georgian Government and our future plans gives me a confidence for stabile and sustainable development of the country!