Georgia Struggles With Iranian Investment

Most governments welcome foreign investment.  It offers obvious economic benefits and represents confidence in a nation’s stability.  But what about investment from a pariah state?

Driven first by Washington and second by Brussels, steadily tougher economic sanctions have been applied against Iran.  Tehran maintains a relationship with countries too important to be browbeaten by the West—China, India, and Russia—but most everyone else with the kind of economy in which one would like to invest has turned hostile.

Yet Georgia has become a major location for Iranians to do business.  Reported the Wall Street Journal:  “Iranian businessmen are flocking to Georgia, a longtime U.S. ally in the Caucasus region, to pursue profits evaporating in much of the world.”  The number of Iranian visitors quadrupled, going from 21,300 in 2010 to 89,600 last year.  Over the last three years Iranian-registered firms have increased from 84 to 1,489.

The economic appeal is obvious:  Iran is close by with a steadily weakening currency.  As a result, explained the Journal, “Iranian products ranging from roofing materials to sour-cherry jam are pouring into Georgian markets.”  Iranians have taken over various Georgian enterprises, including an airline, bank, and scrap-metal plant.  Iran also has climbed into Georgia’s top 20 export markets.  A surprise even lurks for the unsuspecting Western tourist:  “Persian is often heard, such as on a recent night at a Tbilisi casino, where Iranian tourists played roulette and sipped drinks brought by Russian hostesses.”

It’s all legal, in theory, at least, and resulted from a combination of Georgian and foreign government policy.  In 2010 Tbilisi joined Armenia and Turkey and dropped visa requirements for Iran.  One Georgian official told the Journal:  “It’s not our interest to be on a high level of enmity with Iran.”  This helped spur interest in the Georgian market, which flourished even more when Dubai began cracking down Iranian businesses.

Dubai once was the center of illicit commerce with Iran, which lies just across the Persian Gulf.  Indeed, when I visited there in May you still could see small boats loaded for their next trip north.  However, the U.S. has been applying ever greater pressure on the small sheikdom, which is attempting to become a commercial and financial hub.  So trade has been shifting to Georgia.

U.S. officials hadn’t expected Washington’s chief ally in the Caucasus to become a potential leak in the international sanctions regime.  Yet Iranians have not been shy in disclosing their plans.  Iranian businessman Javad Golchinfar declared:  “Especially in the banking sector, Georgia has become a key place to evade sanctions.”  The Islamic Revolutionary Guard Corps is thought to operate around 150 front firms based in Tbilisi.

In response, Washington has sent its own officials to Georgia.  Said Treasury’s David Cohen:  “We are focused intently on shutting down any Iranian attempts to evade santions, including through possible business connections in Georgia.”

Cracking down would cost Tbilisi revenue.  But not cracking down would be even more costly, especially since Georgia’s Prime Minister Bidzina Ivanishvili remains committed to joining both the European Union and NATO.

After publication of the Journal article, his government announced that it had frozen the IRGC accounts.  Tbilisi also dispatched lobbyists to Capitol Hill to emphasize the government’s commitment to the international sanctions regime.

Banking regulators explained that they would take new steps to exclude Iranian companies from the Georgian banking sector.  Giorgi Kadagidze, president of the National Bank of Georgia said that his institution alone had “deranged attempts of several Iranian banks and individuals, associated with the Iranian authorities, to enter the banking sector of Georgia.”  And on July 1 Tbilisi again required visas for Iranian visitors.

The latter step was defended as non-political.  Said Foreign Minister Maia Panjikidze:  “This decision was made not by the Foreign Ministry, but by the commission working on migration issues led by the Minister of Justice.  The new migration policy was developed by taking into consideration the new challenges.  Within the process of developing the policy, visa regimes with different countries should be revised and regulated.”

However, her claim was treated skeptically, especially in Tehran.  Parliamentarian Mansour Haqiqatpour complained:  “The Georgian government curries favor with its Western and American masters in an attempt to gain some advantages from them in return.”  He almost certainly was correct.

Although he predicted the action would “negatively affect” bilateral relations, in reality there is little Tehran can do.  If Iran could easily turn to other commercial outlets, it already would be using them.  Indeed, despite the recent tensions, an Iran-Georgia trade forum went ahead in early July, with business meetings and a product exhibition.

Georgia still has a long road to travel before it enters either the EU or NATO.  However, risking its relationship with Iran is a small price for Tbilisi to pay to maintain its membership chances in both organizations.

Image Copyright Wikimedia Commons