Apr 12, 2015 (LBO) – Georgia, once plagued with rampant corruption is lauded by World Bank today as the world’s number one economic reformer.
Georgia, a country of 4. 5 Million population with a per capital GDP of USD 6,100 was once considered one of the most corrupted countries in the region. One had to bribe his way through to get a new passport, register a property transaction, obtain construction permit, start a new business or gain admission.
“Corruption on the tax administration was widespread and basically there was no revenue collection at all with many corrupt government officials enriching themselves for years.” said Eteri Kvintratze, the resident representative of International Monetary Fund for Sri Lanka and Maldives, at a forum recently held by Ceylon Chamber of Commerce.
Kvintratze, a Georgian native herself, further stated that countries could learn valuable lesions from Georgia in developing and implementing strategies to curtail corruption. However, she emphasized that such strategies could simply not cut and pasted elsewhere.
Any attempt to adopt Georgian experience should be done with the local context in mind, Kvintratze further stated.
“Georgia’s example has inspired many but it’s not right to imply the same structures and policies in another,” Kvintratze said.
Kvintratze was speaking at a forum held earlier this month at the Ceylon Chamber of Commerce.
According to the World Bank, Georgia is named as the number one economic reformer in the world. However earlier reports on Georgia were not quite so great as corruption levels were high.
“But now it is a different story. We took lot of immediate steps towards the change,” said Kvintratze.
Prior to the bloodless Rose Revolution in 2003, Kvintratze says, corruption permeated nearly every aspect the public administration in Georgia. Corruption on the tax administration was particularly bad. Instead of feeding government coffers corrupt officials enriched themselves for years.
The revolution was the turning point.
The new administration came to power with the revolution, recognized the need to combat corruption in government as a national strategic imperative.
There was an urgent need to boost foreign direct investments in the country and the nation’s ranking in ease of doing business Kvintratze said.
The administrations set an audacious and highly ambitions target of zero tolerance of corruption.
Long term strategies to combat corruption were implemented in the areas of the police, revenue collection, customs, power sector, public and civil registers, university entrance examination, and local government service provisioning.
“The program of reforms was comprehensive and targeted at the core functions of the public sector,”
“These long-term strategies were complemented with short term measures such as high profile arrests and prosecution of criminal bosses, government officials and business people suspected of corruption.” Kvintratze said.
“Bribes were needed to get a passport, register property, start a business, obtain a construction permit, and to secure entrance to a university,”
Reforming the traffic police corruption which was at the core of Georgia’s police system was the first step.
“Overnight, the government fired the entire 16.000 man traffic police force. A couple of months later a new police force, hired through a competitive and transparent process and they took over,”
“By the end of 2006 the new administration had abolished a KGB-style security ministry and its related police unit, dismissed every member of the country’s uniformed police and created a new police force from scratch.”
By 2009, it was clear, that the reformers’ strategy of Georgia capitalized on public support which promoted bold thinking, quick action and fixing mistakes as they arose.
“Then we took policy measure to increase state revenue and attract businesses into the country.”
Attract investment through simplified tax structure
The economic impact of successfully curtailing corruption was part of the reason for healthy economic growth Georgia achieve.
According to World Bank data Georgia’s gross domestic product (GDP) growth has been 9.6 per cent in 2005, 9.4 percent in 2006 and 12.3 per cent in 2007 while more recently the data shows that in 2010 it grew at 6.3 per cent, 2011 at 7.2 percent and in 2012 at 6.2 per cent.
“What makes Georgia interesting is it’s doing business ranking is very high at eight while the country GDP growth was very impressive as well,” Kvintratze said.
“We took lot of measures to ease the barriers in doing business,”
Data showed that Georgia’s gross domestic product (GDP) growth has been 9.6 per cent in 2005, 9.4 percent in 2006 and 12.3 per cent in 2007 while more recently the data shows that in 2010 it grew at 6.3 per cent, 2011 at 7.2 percent and in 2012 at 6.2 per cent.
Data through the third quarter of 2014 indicated that the recovery reflected mainly gains of 8.5 percent in industry, particularly in construction, and 5.4 percent in services, in particular for financial inter mediation and tourism. In the same period, agriculture expanded by only 1.3 percent.
On the demand side, growth came from a 5.5 percent expansion in consumption and, in particular, a 21.2 percent rise in investment, mainly in the private sector.
A World Bank report showed, Georgia ranked in 15, in the ease of doing business rankings while when it comes to getting construction permits the country is ranked 3.
In the rankings for starting a new business in Georgia is number five while registering property its ranked one.
“Earlier Georgia’s tax system was very complex,”
“By 2014 we took measures to reduce our number of taxes to seven from earlier 300, though simplifying the tax system.”
Data showed, Georgia’s VAT is 18 percent, 20 percent tax on personal income and has social tax, corporate profit tax, customs import and export tax and exercise tax as of 2015.
Kvintratze said, in the move on development and a zero corruption country, Georgia encouraged all the state departments to move online based systems.
“Everything in Georgia is filled online,” she said.
“We liberalized business registration to two documents, so that people who would like to enter in to business would not have to go through long procedures to get approvals,”
“And this system helps to maintain zero corruption,”
“As a result we saw a huge increase in the FDI flow to the country.”
She added, state sector departments were built using glass to pass a message to public that everything is transparent.
“Visualizing what reforms means is important,”
“We made most of the state sector departments as one stop shops so that people can come and get the work done from one place.”
“There are no corners that people can get involved in bribing. Everything is monitored.”
“You do not need to make an appointment. You can walk in,”
“Systems are made not to harass public but to help them.”
Even though, Georgia’s story cannot be replanted to another country, measures that the country took would help to direct any country.
“If Georgia can do it so can you.” Kvintratze said.