This land is my land and this land is your land

On June 28, 2013 the Georgian parliament passed a law placing a moratorium on agricultural land sales to foreigners until the end of December 2014. Agriculture has been called one of the pillars of the Georgian economy as 53% of Georgians were employed in agriculture in 2011 according to a European Union Neighborhood Programme report. Furthermore, agricultural investment has been the focus of both the current Georgian Dream coalition government, as well as the previously governing United National Movement. As a blog by the International School of Economics at Tbilisi State University highlights, the question then becomes, if Georgia wants to invest in agriculture, where will the money come from if not abroad? This blog looks at how Georgians feel about doing business with different ethnic groups as well as how Georgians feel about Georgian women marrying outside their ethnic group. The post also considers knowledge of foreign languages in rural areas in order to highlight that communication between Georgian and foreign farmers would be difficult without a common language.

Approximately 2,000 Indian farmers settled in Georgia according to a 2013 BBC report. This led to the incitement of protests particularly in the eastern Georgian province of Kakheti in 2013. The 2010 Caucasus Barometer asked Georgians how they felt about doing business with Indians. Results of the survey showed that 64% of rural Georgians approved of doing business with Indians compared to 71% of Georgians in Tbilisi. By looking at how Georgians living in rural areas feel about doing business with other ethnic groups, we can see how the Georgians most likely to be involved in agricultural activity might be inclined to working with foreign agricultural investors. The following graph shows that doing business with Iranians, a group that has also been reported to be investing in agricultural land in Georgia, is approved of by 59% in rural areas, compared to 86% in Tbilisi.

A further way of gauging how rural Georgians feel about foreigners is looking to whether they approve of Georgian women marrying other ethnic groups.  Though Georgians generally are against marriage to foreigners, rural residents consistently disapprove of Georgians marrying other ethnic groups more often than Tbilisi based Georgians. The following graph shows this relationship for Russians, the ethnic group which Georgians are most likely to approve of Georgian women marrying. Notably, rural Georgians approve 15% less than Tbilisians. This question may be related to rural support of the moratorium. Although the CB 2013 does not ask whether respondents would like to have foreign neighbors, presumably rural inhabitants would be less likely to want foreign neighbors if they are unlikely to support the marriage of a local woman to a foreigner.

An additional factor to consider is that rural residents are much less likely to speak a foreign language compared to urban or capital based residents. The majority of rural Georgians (80%) report having no basic knowledge of English compared to 46% of Tbilisi’s residents reporting no basic knowledge of English. Furthermore, 44% of rural residents report having either no basic knowledge or a beginner’s level of Russian, compared to 12% of Tbilisi residents who say the same.

 Note: Responses of Intermediate and Advanced were combined in this graph.

With the language barrier, it could be difficult for Georgian and foreign farmers to form relationships and communicate effectively. In order to avoid the language barrier, a number of companies have brought their own labor force to the country, including the Xinjiang Hualing Group which operates a small factory town on the outskirts of Kutaisi. Despite this, many foreign farmers who have moved to Georgia report hiring Georgians, especially during the harvest season. This could be a further factor which has conditioned the relationships existing between local and foreign farmers, as well as future relations between them.

This blog post has looked at the perspectives of rural residents on doing business with members of other ethnic groups as well as their level of knowledge of English and Russian. It shows that rural Georgians are much less likely to approve of doing business with other ethnicities, and that rural residents are much less likely to have knowledge of Russian or English. With these factors in mind, support for the ban on agricultural land sales may be more understandable. If residents in rural areas, many of whom are involved in agriculture, are less likely to be able to communicate with foreigners and are more likely than other Georgians to disapprove of relationships with them, then would they want them as neighbors? To explore these issues further, we recommend using our ODA tool here or reading this blog post detailing the extent of foreign agricultural holdings posted on the Transparency International Georgia website.

Caucasus Currencies against the US Dollar

How have Caucasus currencies developed against the dollar? This question is not entirely trivial, since significant parts of the local economy are dollarised. Some colleagues, for example, have their salaries denominated in dollars.


As the above chart shows, the Armenian currency appreciated quite sharply against the dollar. The other currencies also appreciated, but remained a little more stable. How to interpret this? We turn to EBRD's 2008 Transition Report.

With Azerbaijan, the report tells us that in "an attempt to slow imported inflation and reduce the impact of the weaker dollar on domestic inflation, the NBA [National Bank of Azerbaijan] switched the targeted currency from the US dollar (effective peg) to a currency basket that currently comprises 70% US dollars and 30% euros." (p. 101)

Georgia, the Transition Report notes, has also pegged and defended its currency, trying to keep it stable; as a result "international reserves fell from 1.5 billion USD to 1.04 billion USD at end-September 2008" (p. 129). The EBRD report does not note anything on Armenian exchange rates, except for a continuing consumer price inflation of just below 12%, annually (August 2008).

Over the next few months, exchange rates are going to be one of the issues to watch. Large fluctuations could make life more difficult. In Azerbaijan, the EBRD suggests that "real exchange rate appreciation (through either nominal depreciation or higher inflation, or both) is inevitable. A tighter fiscal policy will be necessary to control inflation of the medium-term." (p. 101)

And on Georgia: "Given the still high level of dollarisation in the banking sector (more than 60% of lending is in foreign currency), a possible depreciation of the currency would affect the quality of banks' portfolios as the repayment capacity of unhedged corporates [sic] and retail clients weakens." (p. 128)

The Armenian economy seems less dollarised, but, as the report notes, its real estate boom was heavily dependent on remittances. As those decrease, one would expect some impact on the currency as well.

The Dynamics of Diaspora Investment in Armenia

In the South Caucasus, the question of investment from Diaspora communities has become increasingly important. With the largest and most well developed Diaspora network, the dynamics of Diaspora investment in Armenia is of special importance.

Manuk Hergnyan examined the impact of the Armenian Diaspora on generating Foreign Direct Investment (FDI) in Armenia between 1994 and 2004. He conducted a detailed company-level survey among Armenian companies with foreign capital, collected information from the Internet, State Registry of Armenia, Spyur Armenian business directory and several consulting companies.

Hergnyan found that although the Armenian Diaspora played an important role in foreign direct investment attraction processes in Armenia in the transitional period, its level of involvement was less than expected. About 69% of all foreign investors that directly invested in the Armenian economy in 1998-2004 were Diaspora-connected investors, while in financial terms the total value of those investments made up only 24% of total FDI in Armenia.

Hergnyan concluded that the strategy towards Diaspora should become more differentiated; because different Diaspora groups have different motivations, the policy should capture these differences by a segregated and well-thought out approach to each group. Mr. Hergnyan also suggested that the informal and altruistic intentions directed towards families and friends of Armenia-born Diasporans can be encouraged and translated into additional investments instead of direct assistance in line with improvements in the business climate for small and medium enterprises.

The paper, in English, is a must read for those interested in FDI in the region. A version of it will be published in the forthcoming edition of the AIPRG Journal. The level of research is incredibly detailed and provides an excellent set of insights.