Issue 3, 2017. June-July

   

GEORGIA: AN "ISLAND" OF DEMOCRACY AND ECONOMIC LIBERTY IN THE CAUCASUS

Georgia's commitment to reforms is well documented. The country has made progress in most areas, including indicators of economic liberty and democracy, and has surpassed the rankings of most of its neighbors. Is that enough to set it up for success a la Singapore?

Since Georgia's 2003 Rose Revolution, the country has been focused on reform. Its successes have been well documented: less corruption, increased transparency, freer economy, better elections.

Georgia's progress, in fact, has pulled it away from many of its neighbors: in terms of indicators for doing business, fighting corruption and economic freedom, the country is steps ahead of Armenia, Azerbaijan, Russia and Turkey.

Moving Up the Ranks

The World Bank's Doing Business Report, which looks at the regulations that help-and hinder-the business environment in a country, placed Georgia in 16th place-seven ranks higher than in 2016, and the top performer in the region.

By comparison, neighboring Armenia was ranked 38th; Azerbaijan was ranked 65th; Turkey was 69th in the list and Russia was 40th.

In the Heritage Index of Economic Freedom rankings, Georgia went up several points, improving from 72.6 percent to 76 percent, which means it maintains its classification as a "mostly free" economy-the only one in the region. Armenia, with 70.3 percent ranking, is classified as "moderately free." Azerbaijan and Turkey are both ranked as "nearly free," while Russia is ranked as "mostly unfree."

In the Global Competitiveness Index, Georgia increased its ranking from 66th to 59th place. While that is not the highest score in the region-Azerbaijan (37), Russia (43) and Turkey (55) all rank higher-it is a part of the country's trajectory upward.

While good rankings do not always guarantee major investments and economic growth, countries have benchmarked their success by improving their rankings.

A Second Singapore?

An example that often comes up is Singapore, the island nation that transformed from an underdeveloped country in 1965 to an economic powerhouse.

In a 2015 report, The Economist outlined three steps that have helped Singapore's economic success: (1) its strategic location and natural harbor; (2) welcoming foreign trade and investment; and (3) a small, efficient and honest government.

Georgia is on its way to all three of those traits: it has a strategic location as a natural trade hub; it is working to lower barriers for investment and negotiate good trade deals; and the government's reforms aim to create a small, efficient and uncorrupt state.

Michael Hikari Cecire, a fellow at the Foreign Policy Research Institute, noted that "there was always something to Georgia's aspirations to emulate Singapore."

He added that while there have been different political motives for speaking of Singapore in the past in Georgia, there was "little evidence that Singapore's development model was truly studied, much less internalized, for the Georgian context."

There are also notable differences between the two countries, noted Eric Livny, the president of the International School of Economics at Tbilisi State University and of ISET Policy Institute.

"I am not sure Singapore is an oasis of economic or political freedom. It is very successful economically, and is famous for having a greatly centrally managed education system.

But it is not known to be a liberal haven. An economically liberal dictatorship, at best," he wrote in an e-mail interview with Investor.ge.

"Georgia is a very different place. The local culture is much more rebellious and unruly than anything you might encounter in East Asia," Livny added.

Focus on Planning

For Georgia to build on its success-both natural as a strategic transit state and earned on its reformist merits-it needs to do more state-building, Cecire noted.

"For Georgia, being a transcontinental connector state as well as a relative island of democratic governance and economic liberalism in the region, it certainly can do more to position itself as a kind of regional 'Singapore.' But such a policy is not about frequent political declarations or development gimmicks, but the long, difficult, and oftentimes tortuous process of building a new kind of state from the ground up," he said.

A long-term strategy was a key part of Singapore's success, noted Michael Kortenbusch, the principal founder and managing director of Business & Finance Consulting (BFC).

"Singapore's great success would not have been possible without proper execution on its long-term strategy. There is no reason why Georgia could not achieve the same," he said in a Skype interview.

"Most critical will always be a clear long-term vision, proper planning, strong leadership and consequent implementation," Kortenbusch added.

Home Strengths

Singapore has also benefited from playing to its strengths.

The Economist noted that the island sits at the mouth of the Malacca Strait-at the heart of "perhaps 40 percent of maritime trade."

Georgia has its own competitive "assets": ancient and traditional trade routes, noted Livny.

"Economically, we have to remain free, because we survive on facilitating trade flows and tourism (attracted by our beautiful landscapes, unique cuisine and hospitable culture)," he wrote.

"These are the only internationally competitive 'assets' we have. Keeping the borders open and the economy free are the only ways to exploit them," Livny said.

Investing at home is also crucial, Cecire said.

"Economically, Georgia's traditional emphases on a liberal regulatory environment and foreign direct investment are necessary but entirely insufficient steps. The greater and more sustainable prize will come from investing in the country's human capital and physical infrastructure; if Georgia wants to be the next Singapore, it doesn't need shiny glass towers, it needs a large pool of extremely well-educated, globally agile workers," he said.

"That means better secondary and especially post-secondary education that can compete with the world's best. Georgia speaks frequently about being a future transit and logistics hub, but it still lacks a fully developed, rapid east-west highway, among other things.

And, frankly, Georgia needs a foreign and national security policy that both speaks softly and carries a big enough stick to make its potential digestion as entirely unappealing as possible."

He added that Singapore's success has also been a product of its drive to stay a step "ahead."

"The real lesson from Singapore is about excellence in all endeavors. One Singaporean official once told me that they 'always had to be ahead' just to survive, and if you look at Singapore's development even from its impoverished, early days of independence, that principle has been a kind of constant throughout their government, industry, and cohering national identity," Cecire said in an e-mail interview with Investor.ge.

"In military affairs, that meant a dedication to a credible defense at all costs; economically, it meant a culture of innovation and the development of human and physical infrastructure that was second to none; diplomatically, it saw the development of a canny and unsentimental foreign policy that staked out ambitious goals with achievable objectives," explained Cecire.