Georgia-Russia war expected to stall new Israeli investment projects

Current projects and investments are continuing for the time being.

Russian bomber 224.88 (photo credit: AP)
Russian bomber 224.88
(photo credit: AP)
The fighting between Georgia and Russia that erupted over the weekend is expected to put a freeze on new investments from Israel, while current projects and investments are continuing for the time being. "The current crisis will leave its mark on the flow of new investments by Israelis to Georgia," Itsik Moshe, president of the Israel-Georgia Chamber of Business, told The Jerusalem Post in a telephone interview from Tbilisi on Sunday. "The fighting did not come as a big surprise to Israeli investors active in the area and about half of the 50 Israeli investors are staying in the area and the remainder has decided to go back. We don't believe that the situation will damage current investments. Here in Tbilisi the atmosphere could be compared to being in Tel Aviv - business as usual - while at the same time Sderot is hit by rockets or if Israel were to enter the Gaza Strip," he said. Moshe added that the chamber had not received any requests from Israelis to withdraw their investments or to transfer funds from banks in Georgia. The value of realized Israeli investments and projects in the country amounts to $700 million to $800m, according to the chamber. "The three most prominent Israeli real estate projects in Georgia are continuing building, including the $100m. shopping mall project build by Eyal Ofer in the center of Tbilisi," Moshe said. Speaking to the Post, Alexander Kipiani, economic councillor at the Embassy of Georgia in Tel Aviv, said economic activities such as customs processing were continuing as much as possible. "There is a heavy situation and we hope that it is temporary, but Israeli investments in the country are not connected to military actions," said Kipiani. "We don't think the risk is real. We believe that those investments are safe." Bilateral trade between Israel and Georgia amounted to $56m. in 2007, out of which $54m. were exports, according to the Israel Export Institute. "For Georgia, this war is about fighting out an independent position. Georgia wants to show the business community that it is free - a country that is more Western and one that is seeking economic development and cooperation," Moshe said. In addition to real estate and tourism, other areas in which there is great potential for Israeli investment and joint projects in Georgia are hi-tech, mass transit and transport. "We are also seeing great interest from hi-tech companies, in particular software companies that are seeking to penetrate the market in Georgia," said Moshe. In recent years, Georgia has taken much pride in its economic progress, attributing this success to the dramatic reforms introduced by the new, dynamic government in the aftermath of the 2003 Rose Revolution that displaced President Eduard Shevardnadze. These included the introduction of a new tax code whereby the number of taxes were reduced from 22 to seven, with social taxes reduced from 36 percent to 20%, income tax from 30% to 12%, and taxes on corporate profits from 20% to 15%. Customs duties were abolished with the exception of those imposed on a limited number of agricultural goods, and labor laws were changed to allow employers to hire and fire freely, with no impositions such as minimum salaries or on the number of working hours. There's also a one-stop shop for all licenses and permits, and foreign investors are entitled to exactly the same rights as local investors.