Interview with Vazil Hudak - Diplomat Magazine

A Well-Developed Post Investment Plan Is Necessary to Attract and Keep Foreign Investors in Georgia

In many countries, the focus on foreign investment and investors is now at an all-time high. Most economies have to build back from the losses to the pandemic and Georgia is fully focused in this direction too. The government of Prime Minister Irakli Gharibashvili against all common trends decided to choose competence over nationality, and appointed Vazil Hudak to serve as an advisor on foreign investment for Georgia. Vazil Hudak has had extensive work experience in the finance sector both in public and private sectors, and through this interview, he shares his vision on Georgia’s investment potential and how it can attract and keep foreign investors.

Let’s begin by talking about your connections with Georgia, how well do you know the country?

Well, I have been coming to Georgia for quite some time. I would say since the late 90s when Georgia was included in the region that I covered mostly for financial operations with public sector and state companies. I worked for commercial banks such as JPMorgan, and Citibank during that period. And then, of course, more frequently, when I was the Minister of Economy for the government of Slovakia. And even more frequently, when I worked for the European Investment Bank, I was visiting Georgia at least three times per year due to EIB’s active programs in Georgia.

How has the country changed since the first time you visited Georgia?

It’s a significantly good and progressive change. In the late 90s, was not an easy time because I could still feel some impacts of wars and breaking out from the Soviet Union on Georgia as a fledgling country. The post conflict situation was also dire but now, Georgia is a completely different country. There is the modern infrastructure, which is developing rapidly; Georgia serving as an important transit corridor between East and West; Georgia’s young people. In fact, when you are in Tbilisi it seems like being in Paris, or in Berlin or somewhere else. The only telling difference you will notice is in the architecture, but in terms of modern conveniences, Georgia is also a very well developed country.

And how do you feel about the offer to become an advisor to the Prime Minister on foreign investment issues? How did you make your decision?

Well, as I mentioned, I have an emotional connection with Georgia, because I like the country, the people, the culture, the history, and in some aspects, particularly the size and the population of approximately 5 million people, Georgia shares similarities with Slovakia, my home country. Both countries have beautiful nature, mountains, Christian culture and history.

I knew Prime Minister Irakli Gharibashvili from his first term in government. I was working for the commercial banks at the time so, when we met, he was a very young Prime Minister. And then, we also had some more engagements when he went into business after his first terms in office had ended. When I received this offer from Prime Minister Irakli Gharibashvili upon his assumption of office for the second time, he explained that he was seeking to use his second term in office as an opportunity to modernize the country, and to birth new levels of development, which cannot be done without foreign investment. Along the line, he suggested that I serve as his advisor for investment. The decision was an easy one because I love the country. I know Irakli and I respect Irakli as a person, but also as a politician. Of course, I know that Georgia is not the only country where there are some controversies between government and opposition and so on, but for me, it’s important that I feel the commitment from the Prime Minister, and from the government towards making Georgia a good place for the citizens. There’s the vision to make the country modern, but it is important to also keep the traditional values in place. Since I accepted the role, I have met other members of the government, especially the Ministers of Finance, Economy, Foreign Affairs, Agriculture etc., and I see that all these people really care about the country, and they want to do their best. So, I’m in this position to help Georgia, because I like Georgia and Georgians and secondly, to give some ideas, some advice to the government, and to the Prime Minister, about how to improve foreign investments in Georgia.

How would you assess the Georgian environment for foreign investments and investors?

When you look at some of the indexes of World Bank (Ease of Doing Business), EBRD, etc., these traditional reports which are used to compare different countries show that Georgia is among the leaders in the region, and is one of the best in terms of overall climate for investment. Obviously, Georgia is also facing some challenges that developing countries in this region struggle with including a relatively weak legal and regulatory infrastructure, but it is nice to see that they are evolving.

I think that we still need to work especially on the application of laws and regulations. On paper most times, everything looks good, but the implementation of these laws by the courts or via different state institutions, leaves gaps that suggests that they are not being applied correctly.

In some cases, there’s too much interaction between business and politics. There are still cases of state intervention into business, and although they are not unique to Georgia, they play major roles in attracting investors especially in terms of startups and new companies. There’s also COVID which has had its negative bearings on travel thereby limiting the presence of foreign investors. Foreign investors need to be able to come into the country, and in the last few months, we have been witnessing some significant economic growth due to the lessening impact of COVID. We have to work on these problems together in order to fast track the over 7% GDP growth predicted by the IMF mission when they visited Georgia in July.

How would you assess the government’s actions during the pandemic particularly as touching the economy, and how effectively it managed the pandemic crisis?

Handling the pandemic was difficult for every government. I don’t think there are any government in the world that can say we have done an ideal job. Every government is trying to find a way out of this by choosing between how much restrictions you create between a health issue and economic issue.

Too much restrictions of course would slowdown the economy and will have a limiting long term impact on the economic growth of the country.

In Georgia, I know that one of the issues was access to vaccines, and vaccination is something which is critical for any country to be able to restart and reopen their economy. The international community especially the European Union, had their failings in providing quick support and assistance to Georgia despite Georgia being a part of the European Neighborhood. The EU could have been proactive in the provision of support and the availability of vaccines to countries like Georgia. The EU’s support would mean more than showing solidarity, and it would have given real meaning to many on the importance of Georgia being a part of the EU neighborhood.

Despite the difficulty, I think the Georgian government’s proactive stance made it easier to source the vaccines from alternative sources including China, the Middle East, and other intermediaries.

I think now, access to vaccines is not a major challenge, but the mobilization and education of the populace on the importance of vaccination. Maybe by engaging traditional institutions like schools and churches to reiterate that vaccination is important for the country.

Overall, I have to say that this was a very difficult situation, especially as it was difficult to say what is the best way to proceed or to handle COVID. Bearing in mind the limitations that Georgia faced in terms of access to vaccines, I would say that the government did quite a good job and now, it only needs to do more to get more Georgians vaccinated.

It’s been about three months since your appointment to this position. Many people are wondering if you have started working in this direction already, or if this is your first time of getting involved. What has been happening from your side in these past few months?

Well, I started working on some specific assignments and projects. One thing is that the Prime Minister initiated the process of developing a 10-year economic strategy so, I’m actively engaged in the development especially in the areas of economics and whatever relates to foreign investment. I have also held about three discussions, with members of the International Investment Council, which includes different Chambers of Commerce (German, the US, etc.,), and international financial institutions such as the EBRD, EIB, World Bank, IFC etc. We discuss and try to unravel the things that they identify as main obstacles to foreign investment and, we discuss the best ways to mitigate them.

We are now preparing to hold our next discussion on this topic with the Prime Minister’s full participation. We will also be discussing some specific projects. For example, we are working with Rothschild bank, a renowned financial institution (in Europe and across the globe), about the possibility of developing a regional financial hub in Georgia. There are strong regulations on anti-money laundering activities, and tax avoidance issues so, many offshore areas which used to serve as fronts for companies to avoid taxes have implemented strong regulations. Now, they have to move somewhere else, and we believe that Georgia has some interesting elements that makes her fit to be the new hub for the financial industry. Georgia is strategically positioned in the core of the Eurasian continent and it sure has the potential to attract investment funds, etc. What we intend is similar to what Luxembourg did three or four decades ago, when there was basically no financial industry, and no funds being attracted into Luxembourg, but they came up with a robust practical policy, including taxation legislation and so on, and were able to become one of the main hubs of financial industry for Europe and the rest of the world. We believe that Georgia has this potential, and we need to tap into this opportunity. We need to be able to create an environment which will attract financial investment institutions.

Georgia also has a very interesting structure in terms of energy and energy sources, with over 80% of Georgia’s energy being generated from hydro sources. So, in terms of clean energy, Georgia is a very advanced country, but there must be increased production of energy through renewable means (photovoltaic, wind, bio, thermal) in order to cover for Georgia’s electricity deficit. There also needs to be an upgrade to the electricity transmission system in order to allow for the smooth transition of electricity from intermittent sources.

One of the solutions will be to develop a strategy for energy storage through the use of batteries, and to connect these renewable resources with the energy storage. We see this as one possibility which is why we are now starting work on a feasibility study with the EIB and some private consultants on how Georgia could support renewable energy development by providing energy storage and developing a battery industry. We can create an entire value chain to include battery production, especially now that batteries are becoming a trendy topic for electro mobility, electric cars, and for renewable energy storage. So, I think there is an interesting potential for Georgia to attract some investors into battery production, both for its internal energy needs, and also for the region, because Azerbaijan and Armenia also has similar needs. Turkey also wants to develop more renewables, but they also need this kind of energy storage capacity and several other countries in this area also need to increase their energy storage capacities. These are two things which I started working on since I got to office.

Another project is linked to tourism. Tourism is very important for Georgia’s economy. Due to COVID, there’s been a serious decline in the number of tourists globally. One of the key challenges for tourism is easy movement across borders, and now all these PCR test requirements and COVID certificates, etc., have made things quite complex for tourists. So, we started developing a special application, which is called MyGeorgia. This application will be connected to the EU COVID Hub. Basically, all EU citizens who have been vaccinated will receive a special EU certificate. The hub contains information about all people who have been vaccinated so, when they want to come to Georgia, they just basically download this EU certificate into the application and they can cross Georgia’s borders easily without having to present any more documents to the immigration officers at the border crossing in Georgia. This is one of the ways that we can encourage more tourists to visit Georgia from both EU, and non-EU countries. Azerbaijani, Kazakhstani, and Russian tourists have been coming to Georgia, but now, we need to show that Georgia is a country that is interested in tourists and facilitates tourism for people. With the application, we will have a digital solution to facilitating people’s movement across borders. We have had a meeting with the Prime Minister and the Ministers of Economy, Interior and Foreign Affairs about this project and the company developing the application also presented their proposal for the application. We can launch this application in the next two to three weeks, and this application promises to be very good for Georgia’s image, and for people coming to Georgia. The next step will be to make something similar for Georgian citizens so that they can use the certificates and vaccinations issued by Georgian certified institutions when they travel to the EU or to other countries.

You mentioned your meetings with financial institutions. Are you planning to meet with foreign investors already in Georgia, and other potential foreign investors? Please share if you have such plans?

Yes. As I mentioned, we meet with these institutional investors at the International Investment Council. We are actually planning with the Prime Minister to set up an international investment advisory board, where we want to invite the CEOs of some major international companies to join and to regularly meet with the Prime Minister and his economic ministers to discuss the situation and map out solutions to the problems of these investors in Georgia to attract more systemic foreign investors.

If I go back to the country I know the best, Slovakia, I can point out that Slovakia’s growth shot up rapidly in the 90s after some big corporate production companies such as Volkswagen, Kia, Peugeot, Citroen, and most recently also Jaguar Land Rover arrived in Slovakia. Gradually, Slovakia created a strong base for car production with these big investors. This also meant that many local suppliers of small and medium enterprises became suppliers to these big production companies. And now, car production takes care of about 40 or 50% of Slovak economy, which almost did not exist 30 years ago. Today, Slovakia is the biggest producer of cars per capita in the world with a population of 5 million people and more than 1 million cars per year. So, we need this kind of systemic strategic investors to come into Georgia and to then create this global value chain of production from local suppliers.

What do you think should be the main attraction in Georgia, apart from these rankings that we all know? Do you think there’s something else that should attract these kind of investors that you mentioned?

Georgia’s location is very important. Georgia, I believe has a potential to become a hub for the broader region. If you look at the region, it’s very interesting in terms of number of consumers, and people who are in the surrounding countries. At the same time, Georgia is the only country in this region, which basically doesn’t have any major issues with any of the neighbors. As you know, there are issues between Armenia and Azerbaijan, between Turkey and Armenia, between Turkey and Russia, between Russia and Iran, and so on. Every important country in the region has some problems. And for investors, these issues are important when they consider risk ratios and the risk of investing in the country. Georgia is a small but stable and peaceful, friendly country, with nice people, good wine, etc. Georgia has all the prerequisites to become a hub for the production of goods or products, which could then be deployed regionally. That’s why I’m also looking at those areas which are tied to global needs and global consumption. For example, I mentioned batteries, for energy storage and for electro mobility, because this is a new industry, which is developing due to climate change, and due to the transformation of the automobile industry into electric and hybrid. So, we need to capture these new trends and position Georgia as the country which is able to serve as a good base for production. Being a good base for production requires infrastructure, which would allow for these goods to be moved and exported, because they are mostly export driven production. Georgia’s domestic market is small, but if you consider it in terms of the region, the market expands so, you have to create conditions for exports by creating physical networks and connections. Georgia is improving faster with the construction of highways, but I think there should be more attention given to railways, and improving ports infrastructure, but these are all things which can be done, because we need a legal infrastructure and system which will be transparent and easy for investors.

Georgia has unique people and, I think this is one area where we need to do much more. We need young, skilled people who have the skills, and good work ethics required by these companies. So, we need to do a lot in terms of education and training.

You already know the past of the country and the present. Where do you see Georgia in 10 years? Because you mentioned the 10-year development plan. This means some vision is in place, right?

Well, I think for me, Georgia in 10 years should be a modern Georgia, which is able to protect its traditional values, and culture. This is exactly what is beautiful about Georgia.

I think, in comparison to where we are now, I would like to see at least two to three strategic systemic foreign investors, who will start developing Georgia as a regional hub for production, whether it’s batteries, whether it’s IT, whether it’s in agriculture or pharma. You’ll see this, but I think we need these kind of lead investors who will begin to position Georgia as the original hub of production, with high value added production. These productions will also bring more value added tax and revenues for Georgia, which will make the country more attractive for young people to stay in the country, and to be employed, and to develop careers in Georgia.

This is where I see Georgia in 10 years – a good partner country with friendly neighbors of course, where foreign investors want to come because they like the country. Foreign investors also want to come here because they know that if they come here, they will be treated in a good way. One important issue that I didn’t mention earlier is post investment treatments, because I think there is already a well-developed investment plan with Enterprise Georgia and some other institutions. We have a well-developed infrastructure to attract investors, even as we keep working to make it better. However, most investors and interested investors are not sure of what holds post investment especially if it is out of the focus of Enterprise Georgia, and then it seems like nobody cares. It is very important to continue to keep the relationship, and to support investors in resolving these problems. These investors are very important promoters of Georgia as the place to come for investment. So, the post-investment environment is another area that I would want to focus on improving.