A Leader Against a Feeble Background: Georgia as a “New Success Story” in the EU’s Eastern Politics

Brussels counts at least a few key areas in which Tbilisi has been quite successful. Above all, Brussels lauds Georgia’s meticulous and timely compliance with most clauses of the Association Agreement, as well as the visa liberalization roadmaps worked out with the European Union. Secondly, through targeted measures, Georgia has been able to maintain and even improve its fairly high positions in key international investment climate rankings. Furthermore, the Georgian authorities have been striving to ensure the best possible integration into the system of international trade agreements. However, domestic political conditions cast a shadow over the overall image of the country, which has declared itself a part of Europe. To make matters worse, the Georgian “success story” is also threatened by various systemic problems of the national economy.

Why would the European Union turn a blind eye to the domestic political processes and systemic economic problems in Georgia? The key reason is the desire to shift the spotlight to those members of the Eastern Partnership that show relative political and economic stability, as well as certain progress with regard to domestic reforms. The desire is quite understandable given the palpable setback in the pro-European agenda in Ukraine and Moldova.

Nevertheless, the Georgian “success story” may well soon run its course. The shortage of real opportunities for further rapprochement with the European Union in terms of intensifying cooperation and securing better financial support, as well as the absence of significant changes in Georgia itself, may well eventually drive both the public and political elites to frustration. In this case, relations with the European Union, and with the West in general, will be increasingly built on a geopolitical rather than a regulatory framework.

“Those [countries] who declare higher ambitions should also deliver on the reforms they have committed to. Georgia is a good example,” the ministers of foreign affairs of Sweden and Poland, Margot Wallström and Witold Waszczykowski, said in a co-authored article published ahead of the Eastern Partnership Summit in Brussels on November 24, 2017, arguing the need for closer relations with the European Union’s eastern neighbours. Indeed, in recent years, Georgia has been just about the only country in the region that continues to display lofty ambitions in its relations with the European Union while at the same time making a number of practical changes in public administration and the economy in keeping with Georgia’s commitment to “political association and economic integration” with the European Union. In this context, one wonders if Georgia is in a position to become the new “success story” of the Eastern Partnership against the background of the unfulfilled hopes for the Europeanization of Moldova.

Positive Achievements

Official EU documents and statements by its representatives have been predominantly favourable towards Georgia. Brussels can see a few key areas where Georgia has shown palpable progress. First of all, Brussels lauds Georgia’s meticulous and timely compliance with most clauses of the Association Agreement as well as the visa liberalization roadmaps with the European Union. After all, other Eastern Partnership countries, Ukraine in particular, have often delayed the enactment of certain legislative acts or the publication of national plans in certain areas of national policy in violation of the agreed timelines. For Georgia, this has not has not really been a problem.

Secondly, with targeted improvements (for instance, the verification procedure for the income declarations of public officials introduced in 2017 to enhance the transparency of public tenders) Georgia has managed to keep and even upgrade its already fairly high positions in international investment climate ratings. For instance, Georgia is ranked 44th out of 176 countries in the Corruption Perceptions Index and 16th out of 190 countries in the Doing Business Index. International experts have also praised the high efficiency of Georgia’s macro-financial regulation.

Furthermore, the Georgian government has abided by the policy of highest possible level of integration into the system of international trade agreements: in addition to the agreements signed with the European Union, Tbilisi has achieved free trade agreements with China and the European Free Trade Association. This said, a respective free trade agreement with Russia has been in place since it was concluded in 1994. As a result, foreign and domestic investors do not just get comfortable conditions in terms of government controls, but are also given the green light to build production and supply chains across relatively open foreign markets.

Thirdly, on July 1, 2017, Georgia became the first country in the region to accede to the Energy Community spearheaded by Brussels in a bid to liberalize energy markets in accordance with the EU acquis, especially with the Third Energy Package. Faced with a severe energy shortage after the breakup of the Soviet Union, Georgia has taken consistent steps to create a competitive gas and electricity supply and distribution market since 1997. Specifically, private generating companies now account for over 40 per cent of all the electric power produced in the country. What is more, Georgia became a net exporter of electricity in 2016. Georgia has also been able to streamline the activities of its national energy market regulator in accordance with international standards.

Shadows of Domestic Policy

Alexander Skakov:
Georgia, the European Union and Associated Membership

However, all the talk about the success of Georgia’s modernization has been accompanied in the global media with reports to the effect that, in reality, Georgia is not run by the parliament or the president, but rather by tycoon Bidzina Ivanishvili. And his Georgian Dream party, while enjoying a strong majority in parliament, seeks to expand its control of the country’s political and media space even further. Therefore, domestic political conditions cast a shadow over the overall image of the country, which has declared itself a part of Europe.

In late September, the Georgian parliament finally gave approval to the new constitutional draft. According to the ruling party, the new constitution aligns Georgia with Europe by creating a parliamentary democracy and introducing a proportional electoral system to replace the old mixed system. However, representatives of opposition and the country’s president have spoken strongly against the new initiative, arguing that its only purpose is to consolidate the Georgian Dream’s grip on power for at least a decade to come.

Indeed, the new constitution contains a number of controversial provisions that can hardly bolster political pluralism in the country. For instance, on the one hand, the amendments introduce a proportional electoral system considered by European observers to be better aligned with democratic values in a post-Soviet environment than a mixed system, since the latter leaves the door open for considerable manipulations in constituencies. The presidential election procedure will also be changed: the president will be elected by indirect vote taken among a panel of voters consisting of MPs and regional representatives. But this will not happen until 2024, so that no one will suspect that the new clause is directed against incumbent President Georgy Margvelashvili. On the other hand, however, the introduction of the proportional electoral system will also be delayed until 2024; it will not be put into practice in the 2020 election, as the opposition and foreign partners expected. Furthermore, the new constitution bans electoral alliances at both the 2020 and 2024 elections, and reinstates the current 5 per cent threshold to enter parliament from 2024.

Faced with negative feedback from key European institutions, particularly the European Commission for Democracy through Law (the Venice Commission), the Georgian constitutional commission made a number of concessions. Firstly, to offset the negative effect of the prohibition of electoral coalitions, it agreed to apply an election threshold of 3 per cent at the 2020 election. Secondly, it abolished the bonus system of distributing parliamentary seats that had remained unallocated because no candidate had cleared the 5 per cent threshold to the party receiving the highest number of votes starting from 2024. These concessions convinced the Venice Commission of the legitimacy of the pending constitutional reform, while referring to the postponement of the entry into force of the proportional electoral system until 2024 as “highly regrettable.” Nevertheless, the resulting compromise on the political reform still looks more than anything like it is designed to consolidate the position of the ruling party at both the 2020 and 2024 elections. The lower status of the president in the country’s new political system is more likely to upset the system of checks and balances, while the ban on electoral blocs in combination with a high entry threshold will negate the positive effects of the proportional system.

The aspirations of the ruling party to broaden their control over the country’s media space are demonstrated by another event related to the fate of the opposition TV channel Rustavi 2. A claim was filed against the owners of the channel – incidentally, one of the most popular in the country – demanding that it be returned to its former owner, from whom it had been allegedly taken under pressure. The United National Movement (UNM), whose followers had control of the channel, denounced the Georgian Dream for wishing to cleanse the media field since; according to UNM information, the plaintiff had a sister who represented the ruling party in parliament. In early March 2017, the Supreme Court of Georgia ruled in the plaintiff’s favour. The judgement was overturned, however, by the prompt interference of the European Court of Human Rights.

Meanwhile, Georgia’s international partners are fully aware that the Georgian Dream consolidating its monopoly on power is at odds with the sentiment of the majority of the population. Specifically, a poll conducted in the first quarter of 2017 by the International Republican Institute revealed that 65 per cent of Georgians believed that the country was moving in the wrong direction (compared to 12 per cent in November 2012), with only 13 per cent of those who took part in the poll convinced that the Georgian Dream was the best choice to cope with the challenges facing the country. That said, the ruling party has only been able to consolidate its position using both financial and administrative resources, the peculiarities of the national legislation and the lack of any political alternative. Opposition parties are constantly splitting up, while the United National Movement is losing ground because of constant interference in its daily affairs from Mikhail Saakashvili, who now resides abroad.

Economic challenges

Apart from the domestic political situation, Georgia’s “success story” is also threatened by systemic problems in its national economy. In the first place, the country’s financial and economic system is not entirely stable. The country is showing a high degree of dollarization, and given a budget deficit of more than 4 per cent, ensuring macroeconomic stability will require $285 million in IMF injections and 45 million euros in macro-financial assistance from the European Union in 2017–2019.

Secondly, economic growth, which has averaged 2–5 per cent in recent years, has been driven mostly by the services sector, particularly tourism and construction, while agriculture and manufacturing has stagnated. Meanwhile, almost half of the working population is employed in the agricultural sector, which contributes a meagre 7 per cent to the national GDP. Unemployment figures are also running high. What is more, bringing economic development to a new technological level requires highly skilled specialists, who are in short supply, as well as an adequate education system.

Thirdly, Georgia is plagued with a huge foreign trade deficit of over $5 billion, while its exports amount to just above $2 billion. IMF, World Bank and EU experts often point out that the country is struggling because of its weak export structure. Specifically, they voice concerns that Georgia mostly exports raw materials to foreign markets, including copper ores and concentrates, nuts, ferroalloys, gold and fertilizers. Therefore, the nation’s export revenue is strongly dependent on the situation on the global commodity markets. Derivative exports requiring a higher degree of processing, particularly alcoholic and non-alcoholic beverages (wines and drinking water), are intended mostly for the Russian market (worth more than $110 million in 2016), which means that Georgia has yet to tap other markets for these goods.

EU experts also note that Georgia has a long way to go to fully realize its agricultural and food production potential. Nuts are the country’s main food export commodity, while its climatic and soil resources would certainly allow it to considerably improve the quality and certify a number of other traditional products (drinks, fruit, honey, tea, herbs etc.) in accordance with international standards. It could also produce new niche and high-margin goods such as fresh and frozen berries (blackberries, blueberries, raspberries), kiwi fruit, feijoa fruit, hybrid fruits, etc.

However, the development of export-oriented technology-intensive farms is impeded by the fact that most agricultural lands are held by small farmers, traders in agricultural products are not playing by civilized rules and farmers have limited knowledge of the varieties of plants they can choose from. Factors such as the high incidence of plant disease, etc., also contribute. At this rate, to successfully tap into foreign markets, Georgian business needs fundamental changes, specifically, in terms of business management and technological level, and consolidation of small farms for the sake of new technologies and export development. The Georgian government is also facing a multitude of tasks: building a system of sanitary and phytosanitary controls, securing export loans, incentivizing small farms to sell their land, etc.

In this light, it is unlikely at this point that Georgia will be able to benefit fully from its economic rapprochement with the European Union. As is the case with Armenia, Georgia’s exports to the European Union have grown only marginally over the past decade (from 470 million euros in 2006 to 550 million euros in 2016, with considerable fluctuations in between). The European Union is currently responsible for around 30 per cent of Georgia’s exports and imports. The key commodities exported to the European Union include nuts (40 per cent), fertilizers (18 per cent) and ferroalloys (5 per cent), while wine makes up only 3 per cent of exports. It is doubtful that the country will be able to reverse this situation in the next few years.

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Summing up, we should consider why, when assessing the country’s Europeanization progress, EU representatives steer clear of assessing political processes inside the country and its structural economic problems. The key reason is the desire to shift the spotlight to those members of the Eastern Partnership that show relative political and economic stability, as well as certain progress with regard to domestic reforms. The desire is quite understandable given the palpable setback in the pro-European agenda in Ukraine and Moldova, where oligarchs not only play the “grey cardinals,” but quite openly dictate their will and which are plagued by ongoing political instability while reforms and European norms and standards fail to be implemented even on a pro-forma basis. Against this background, Georgia is undeniably doing better.

Nevertheless, the Georgian “success story” may well soon run its course. The lack of immediate opportunities for further rapprochement with the European Union through more extensive cooperation formats and increased financial assistance, as well as the lack of any significant changes within the country, particularly the failure to ensure sustainable and inclusive economic growth, may eventually lead to frustration – both among the public and in political circles. The country’s relations with the European Union, and with the West in general, will be increasingly built on a geopolitical rather than a regulatory framework.