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Construction site at the Iveria hotel (later renamed Radisson Iveria) in Tbilisi.
The Georgian construction sector was plagued by excessive licensing requirements
before the 2005 reform. Photo: flickr/miss_rubov

By early 2005, the 49-year-old former businessman was put in charge of a whole range of diverse initiatives as State Minister of Reform. This included a new anti-corruption strategy, the privatisation of state-owned agricultural land, public administration reform, a new competition policy, policy on managing forests and health care reform. It also included one of the most important tasks for the government: changing its international image among investors.  Despite its early reforms, Georgia still faced a huge image problem among potential investors. An October 2005 article in Forbes was a case-in-point:

"Georgia ranks 128 out of 133 countries surveyed for corruption by Transparency International. Half of Georgia lives at or below the poverty level. Justice-starved courts hew to a political agenda. Kidnappings for ransom also occur. After spending $275 million over four years on modernizing Tbilisi's electricity distribution plant, AES Corp. pulled out of Georgia in 2003 after its financial manager there was slain following electricity tariff increases."[292]

Bendukidze quickly identified a way to anchor the performance of his economic reform team and address the issue of Georgia's poor investment image. He linked his efforts to the criteria defined in international ranking systems - particular the Ease of Doing Business index (EDBI), a new index which had published its first ever report in 2004. Rising in these rankings now became a national policy priority, closely monitored by president Saakashvili; achieving this was soon seen as another major success of Bendukidze.

The EDBI is based on the idea that there is one global best practice model of (minimalist) business regulation. It is also based on the assumption that reform can be achieved through discreet reforms independent of the wider policy and institutional context. As Sam Schueth writes in a fascinating article soon to be published, the authors of the index operate on the basis that

"the state with the fewest separate taxes and separate payments, lowest tax rates, and fastest (electronic) payment system will score highest on the paying taxes indicator. States that score the highest on the employing workers indicator have the least regulation of hiring and firing decisions."[293]

One of the main Georgian reforms in this context was the passage of a new employer-friendly labour code in May 2006.[294] The explicit goal of the new law was to make hiring and firing procedures as flexible as possible. It left employees with little legal protection, while easing many procedures for employers. It stipulated that virtually all aspects of the employer-employee relationship were to be regulated on a contractual basis. It permits such general grounds for terminating employment contracts that, as trade union representatives argue, they amount to "firing people without a reason."[295] It provides for one-month severance pay as the only benefit for workers dismissed by their employers.[296]

"Ease of doing business", 2008 report. Photo: World Bank
"Ease of doing business", 2008 report. Photo: World Bank

In October 2008, speaking at a reception organized by the European Resource Bank in Tbilisi, Georgia's libertarian Prime Minister Lado Gurgenidze lauded the Labour Code as an "entrepreneurial revolution." For Georgia's ranking in the World Bank's "Doing Business 2007" index, it was also a very positive development. Soon Georgia was ranked the 6th most employer-friendly country in the world with respect to labour regulations, and Georgia's labour code was declared one of the three "boldest reforms" carried out anywhere in the world in the 2005/2006 period.[297]

Table: Ease of Doing Business, Georgia and the Employment Indicator (EBDI), 2006

Suggested readings

For more on the New Economic School of Georgia, see www.nesg.net.

On the Liberty Institute, see "Pro-West leaders in Georgia push Shevardnadze out" by Hugh Pope (2003) in the Wall Street Journal. This article describes the Liberty Institute and the role it played in the Rose Revolution.

For a list of all privatization sales since 2004 (listed by the Government of Georgia) please see www.privatization.ge. Please note that this list does not include all transactions which took place.

Molly Corso, a freelance journalist writing for EurasiaNet published the article "Privatization in Georgia: Solving the 'sensitive' issues" (2005) in which she discusses the privatization process in Georgia and challenges and debates surrounding it.

For the number of state owned enterprises and privatization before the Rose Revolution, please see: World Bank: "Georgia: A blueprint for reforms" (1993).

The following is a reading list on licensing reforms in Georgia: Celebrating Reforms 2007 is a collection of reform case studies from around the world. Compiled by World Bank's Doing Business project, Georgia features two times: with licensing reform and land privatization.

In 2008, World Bank's Doing Business project conducted a study of licensing reform in various countries around the world, entitled Dealing with Licenses, Georgia is featured as an example of an extremely successful reform in the construction sector.

Also in 2008, International Finance Corporation (IFC) in Georgia did a study of Georgia's license reform. To access the study go to IFC Georgia Website or click Georgia after 3 years of Licensing Reform.

Georgia's new Labour Code has been translated into English and can be found in the websites of World Bank's Doing Business project, the International Labor Organization (ILO) and other organizations: Labor Code of Georgia.

Between 2006 and 2010, Georgia rose 89 places

April 2010

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