Bendukidze: The Russian Government Is Deceiving Itself
Russian sanctions against Georgia have had no noticeable effect because Moscow is operating on mistaken ideas about the condition of the Georgian economy, says former Russian oligarch, now Georgian State Minister for the Coordination of Economic Reform Kakha Bendukidze. Kommersant correspondents Mikhail Zygar and Igor Fedyukin spoke with him about natural gas, wince and combating corruption.
How do you assess the situation developing in relations between Russia and Georgia now?
Diplomats call it a certain worsening in relations. All the while, there is nothing especially happening in Georgia. You are here. I think you can confirm that. Unfortunately, the majority of media in Russia cannot write what is really happening in Georgia. That is a huge problem for Russia. It's not for Georgia. We'll get by. But that's really bad for Russia. Look at how civic society is organized. State institutions, embassies and intelligence, for example, provide the country's leadership with some kind of information. And there are still public institutions that release information. As a result, you have a cross check. The public official receives information from different sources – television, newspapers and from his own subordinates. And that information cannot differ greatly. Officials understand that they have to write the truth to their superiors and more detailed and reliable truth than what is in the media. When the media doesn't work, social control over the quality of information on which government decisions are made disappears. It turns out nonsense.
If newspapers write about how bad things are in Georgia, many decisions that are made in relation to Georgia, and not only to Georgia, will be made on the basis of that distorted information. I was amazed to discover that they seriously discussed in the Russian press whether the pre-election rating of the ruling party would be 12 percent or less. They are writing seriously that the authorities would lose the elections if it weren't for the tension in relations with Russia. It is not a matter of who is good or bad. The Russian government is simply not receiving information and is deceiving itself.
How strong a blow have the Russian sanctions been to Georgia?
The rise in gas prices will cost us about 1 percent of the GDP and closure of the railroads another 1 percent, since 80 percent of tourists were Russians this winter. But many measures simply have no effect. They wanted to ban money transfers, but that will be simply an extra headache for people, and that's all. People will transfer money through other countries. It is an hour and a half to drive from Tbilisi to the Armenian border. An Armenian bank will open a branch, and people will open accounts there. It will be hard for some people if transfers become more expensive. Transfers make up just a few percent of the Georgian GDP, and in Russia they think it is 20 percent. Decisions are made on the bases of estimations like that!
How much is the ban on importing Georgian wine to Russia being felt?
The loss will be a maximum of half a percent of the GDP. The volume of wine imports to Russia was $120 million. But that is the final cost of the wine, it comes to a significant extent from the cork, bottle and label, and much of that is bought abroad. Not only that, the wine that is not being sold in Russia will be sold in other countries and so the damage to the economy is insignificant. Next year, it will be even simpler. Just 20 percent of Georgians grapes went for wine that was sold in Russia. That is not a lot. New facilities have been built since then, both wineries oriented toward different markets and facilities for making juice. There was no loss of grapes. There was even a shortage of them. It is not that we are so mighty, but that is simply the situation. In Moldova, wine is 30 percent of the exports. Here it is 7 percent.
To what extent have you made up for the loss of the Russian market already?
I think that exports to other markets will be three times greater this year than last year, and next year we will restore exports as a whole to last year's level. A new winery was opened recently that cost $20 million and was built with the involvement of Italian capital. And that winery was started after the Russian embargo began. Some people think that wine can only be sold in Kemerovo. Others think that it can be sold in other countries too. The two largest markets for imported wine in Europe are England and Germany. Together, they are worth about $10 billion. Our task is to sell $100 million on that wine market, that is, to occupy 1 percent of it. That is not a fantastic task.
Was there any pressure on the government from within the country after the imposition of the sanctions?
There was, of course, but its size was not what Russia was expecting. Some vintners came and one company that works especially for the Russian market. They said something like, “Here, maybe, somehow…” We answered them the first time, “What exactly are we supposed to concede?” Give up territorial integrity for their lousy dividend? There are no people like that in Georgia.
Did the sanctions backfire? Did they unite society around the Saakashvili government?
Yes, but not to the degree that they in Russia. It did not effect the elections. It would be interesting to ask Russian leaders how many Georgians they think support Georgia's accession to NATO. The ratio is about ten to one; 65-70 percent support it, 5-7 percent don't.
How are things with Georgia's gas supplies?
It wasn't so long ago that found gas in Tyumen. Until the 1960s, they supplied gas to Moscow from Saratov and further south – even from Iran across the Transcaucasus. When the pipeline was blown up in January and an accident happened on the electric line at the same time, and the pressure of the gas going to Azerbaijan happened by chance to fall at the same time so that nothing reached us, we made an agreement with Iran. We used the old pipeline.
How much of your demand can it meet?
No one has checked it at full capacity, but it can fully meet our residential demand. And there is one new gas pipeline that goes through Tbilisi to northern Turkey from the Shakh-Deniz deposit in Azerbaijan. That deposit hasn't reached full production yet, but when the next phase is begun, there will be an unlimited quantity of gas. It is possible, in principle, that we can form a real gas market in Georgia in some time.
What price will Iran sell you gas for?
The negotiations are not completed. But whatever the price is, as long as it is cheaper than heating oil or diesel, it will suit us. If it is more expensive, we will think about what fuel to burn. I have a converter at home. Turn it one way and you burn gas. Turn it the other and you convert to diesel. You don't need a pipeline for diesel.
What is going on in the Georgian economy now?
Economic growth in the first half of the year was 7-8 percent. We greatly simplified doing business in Georgia. That helps attract investment. Take construction, for example. Land is in private ownership, no need to reach an agreement with anybody, give a share to the city, you receive permission quickly. One person came from Russia and wanted to invest in construction. He went around for a long time finding out whom to give bribes to. Then he went to talk to the mayor to find out how much the city would take. The mayor simply didn't understand what he was talking about. “What? When I build, you'll ask for a part of the area for yourself!” the Russian said. The second happy phenomenon besides the growth of the economy is that, for the first time in many years, the balance of migration has changed. More people came than left.
Last month, the World Bank and the International Finance Corporation that Georgia has had the greatest success improving its investment climate this year. Did you have a reform plan?
There was no plan, but it was understood what had to be done and done fast. Even before I became a minister, but had already agreed to it, we came for dinner with the president. I said then that reform has to be carried out very quickly after a revolution. Then tiredness sets in, everything has been polished up and no one bothers anyone else. Muammar Qadhafi wrote in his Green Book that everything has to be changed within the first six months of a revolution. After that, it will be hard. And he didn't even have the problem of reelection – that just doesn't happen. I was sure that the window of opportunity would close over time and we had to get as much done as possible. But it turned out that we were able to maintain that window of opportunity for a long time and the main reforms are going on now and will go on next year.
On account of what did you succeed?
I think it was connected not only with general economic reform, but with specific actions. For example, two years ago, the very idea of ensuring an uninterrupted electrical supply seemed unbelievably laborious. Some even thought that it was unrealizable adventurism. We did it in two years. We are fighting corruption. One producer, who ships mineral water from West Georgia to Tbilisi, told me that they stopped his truck an average of 54 times in a distance of 250 km. And that is not just one person. The situation is changing, and people understand that. It's analogous to the single state exam, as they call it in Russia, but done normally, without exceptions, competitions, special rights for Moscow State University and so on. Simply a single exam that is held the same everywhere, in front of television cameras. We made it easier to register firms. I think the real time it takes to register was cut to one-fifth. That is tens of thousands of people who see specific changes.
But in other countries, liberal reform governments have always departed rather quickly.
Because they reformed much more successful countries than ours! In Great retain, everything works any way. It just has to be improved a little. That is very hard, and there will be those who are dissatisfied any way. In Georgia, everything was completely rotten. What can be the negative result of a reform of the road police, if they don't regulate the traffic flow, don't watch the roads, but only exact fines? How could it be worse? Our reforms consisted of simply removing the monstrous, loss-making oppression of regulation.
You speak of fighting corruption, but it can't be simply cancelled by presidential order.
Of course not. But there are cumulative actions. First, limit the authority of bureaucrats. If they don't regulate anything, then they can't take anything, right? Second, change personnel. We have 85 percent new people in the police. Last year, 19 cases of corruption were uncovered, and they all concerned the “old” 15 percent of the force. And there is the zero-tolerance policy toward corruption. There can't be an attitude that, yes, they steal something somewhere, but only a little. So we are fighting. A little here, a little there, and corruption is being reduced.
Mikhail Zygar, Igor Fedyukin
All the Article in Russian as of Nov. 07, 2006
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