Political Turmoil Hits Georgian Economy

The Rustaveli Cinema usually runs 20 showings each day. But since early April, when protesters took to the streets demanding the resignation of Georgian President Mikheil Saakashvili, its screens have gone dark.

Devi Gvakharia, the cinema's marketing director, said that while the movie house's front entrance was blocked by demonstrators, more importantly "no one is in the mood to go to the movies."

The Georgian opposition has been staging daily protests since 9 April in the biggest demonstrations against Saakashvili's rule since the conflict with Russia last summer. The country's political standoff is entering its ninth week, with opponents continuing to demand that the president step down, accusing him of monopolizing power. Saakashvili has also come under criticism for his handling of the country's pro-Russian breakaway regions of South Ossetia and Abkhazia, culminating in the heavy defeat in last summer's brief South Ossetian war. The Georgian leader has rejected resignation calls and offered to hold talks on democratic reforms.

Government officials have said the protests, which are a manifestation of political instability that has plagued Georgia for months, threaten a recovery in foreign investment that the country had begun to see after the August war.

Before the war and the worldwide slump, Georgia's economy was booming, growing at more than 12 percent in 2007 on the back of broad economic reform and foreign investment, according to Prime Minister Nika Gilauri. This year the economy is forecast to contract by 1 percent or more, while foreign investment is expected to be only half the $2 billion recorded in 2007.

But the demonstrations – along with other disruptions such as the improvised "prison cells" erected at sites across Tbilisi to symbolize the country turning into a police state – appear to be having a much more local effect as well.

"I try to avoid making political statements, but it should be said that the protests have most certainly had a negative impact on our business, as we are located just in front of Parliament," cinema manager Gvakharia said. He estimated that the business had lost about 150,000 lari ($90,000) because of the closure.

In addition to the cinema, several other businesses on Rustaveli Avenue, which runs past Parliament, have temporarily closed due to the protests, and some companies that continue to operate report reduced sales and fewer visitors.

One small business owner on the avenue closed up shop completely when the protests began, later reopening except during the largest demonstrations. Safilo opticians' owner Ia Shotadze said sales in April had dropped by 20 percent compared with March.

Across the street, sales fell 20 percent in April and another 9 percent in May at the Tegetamotors auto dealership, Valeri Mezvrishvili, the firm's financial manager, said. Despite the tough business climate Tegetamotors has pumped $300,000 into a new branch opening.

"Businesses are facing a period of stagnation right now. Nobody is doing anything," Mezvrishvili said. "Everyone is waiting. Companies have stopped operations."

He defended the plans to go ahead with the opening of the new dealership, even as he admits the company has no plans to promote the new outlet due to the poor economic environment.

"It was not a risky decision to open a new branch, because everything was prepared a month prior to the opening," he said. "There is no sense in marketing, as there are no buyers around. Marketing is aimed at attracting new buyers; people are not buying cars anymore due to both the financial and political crises."

Mezvrishvili said sales have dropped 30 percent since August, when the tension with Russia exploded into a brief war.

Amid growing fears of the economic effect of the protests, the International Chamber of Commerce in Georgia is seeking a way out. The chamber's chairman, Fady Asly, called on the protesters to compromise.

In an open letter published in Georgian newspapers, Asly appealed to the demonstrators to begin a dialog with the government. He warned that the ongoing protests could irreparably damage Georgia's economy.

"The situation was especially aggravated after the August war and beginning of the global financial crisis," Asly told TOL. "These events led to a reduction in the flow of investments. Georgia lost many potential business partners. That's why the demonstrations are most untimely. They are very dangerous for our economy and therefore detrimental to our country."

Prime Minister Gilauri said the government had managed to maintain a healthy economic environment and stable currency even amid the global financial crisis, but now, "Any kind of political disruption of course will cost this economy a lot. This will cost investments, this will cost business decisions, and it will cost jobs for the population demonstrating on the street. No question about that, it will cost the economy a lot."


Georgia's economy was already in free fall from the double impact of the August 2008 war and the global crisis, according to International Monetary Fund estimates. The IMF said the country's economic growth "suffered a dramatic decline" from 12.4 percent in 2007 to an estimated 2 percent in 2008, after a sharp contraction in the second half of last year.

The government now forecasts negative growth for this year, and blames the protests. In early June a government statement said Georgia's economy could contract by 1.5 percent in 2009 as a result of "street politics."

"Unfortunately we have almost totally lost the first half of the year, because of the crisis of political relations," the statement reads. "The existing situation was reflected in the confidence of both local business and investors toward the country in general."

But not everyone thinks the demonstrators should pull back for the sake of the economy. Lado Papava, a former member of parliament and an economist, published an open letter of his own in April calling on businesses to direct their ire not at the protesters but at the Saakashvili government.

"Everyone knows that protest actions hurt the economy," he wrote. "The trouble is ... you should address not the leaders of the opposition, but the Georgian authorities. It is not the calls of the opposition but the unreasonable policy of the government of Georgia throughout the years that made people take to the streets."

But Asly, from the chamber of commerce, said foreign investors do not ask who is right and who is wrong in this struggle between the opposition and the government. They simply get an image of Georgia as an unstable country.

Nodar Khaduri, an economist at Tbilisi State University, said that while many businesses have suffered during the protests, others, like fast food outlets and cafes, have seen a jump in sales.

"Business is more negatively affected by what drove people to protest, not by the protest itself," Khaduri said. "Protest rallies are the result of incompetent politics. Ultimately, local business is more influenced by having Russian military troops on occupied territories, not protesting people on Rustaveli Avenue."

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