The Georgian Government has adopted amendments to the Law on Ownership of Agricultural Land, which will regulate the rules for sale of agricultural land plots to foreigners. The bill was presented to the Georgian Government by the Minister of Justice.
According to Thea Tsulukiani, the Justice Ministry, together with the Ministries of Agriculture and Economy, has been working on the project for several months. The working process also involved representatives of the legislative body, and agricultural experts. Participants agreed on the draft law, which was approved at the Government session.
According to the amendments, foreign citizens and legal entities founded abroad will not be allowed to purchase agricultural land plots in Georgia. The sale of agricultural land to foreign physical persons or foreign companies, even if they are founded in Georgia, will not be possible within a five-kilometer distance from the Georgian border and in any other border zones determined by the Government. No foreign physical person or foreign company will be able to buy agricultural land on the borderline and specified zones.
Ketevan Krialashvili, an executive director at Economic Policy Experts Centre has analyzed the initiative with Georgia Today. She claims that this new initiative will not bring any results as foreigners will still buy the lands through different means. According to Krialashvili, the state should privatize lands, thus the price of the lands will increase and foreigners will lose interest in buying land in Georgia.
Q: How would you assess the initiative of the Ministry of Justice to ban selling agriculture lands in Georgia to foreigners?
A: The initiative of the Ministry of Justice not to sell land to foreigners will not bring any results, because the problem does not lie in whether we allow land to be sold to foreigners or not. The essence of the problem is why they want to buy land in Georgia. There is a practice that foreigners are buying lands in Georgia and they are looking for alternative ways to do so and they do it through the citizens of Georgia whom they trust. Georgians do not have the money to actually carry out the privatization of land. In other words, this law will result in a variety of informal agreements between Georgians and foreigners.
In 2011-2012, we studied all auctions and found that 1 square meter of land in Georgia costs 5-7 tetri (average). This price arouses the interest of foreigners and nothing more, because they can find the land with the same fertility elsewhere but the price will be higher. Within two years of privatization through electronic auction the state managed to obtain only 21 million Lari. At these auctions the price of the land was 5-7 tetri, while there were some lands that were sold at a higher price but this was in Sighnaghi and on the Black Sea shore.
Due to the fact that the state owns 80% of the privatization of the whole agricultural land, at this rate it will take 20 years. So, we say that the market economy is the basis for the formation of private property. Therefore, we must manage and accelerate privatization.
Q: How can the state accelerate the privatization of lands?
A: If we look at previous years, although the state was selling lands for 5-7 tetri, it was selling it in large lots, therefore the farmer for whom it was intended could not afford to buy the land. Firstly in large lots, it was quite expensive and secondly many people did not know how to privatize lands via electronic auctions. We argue that it is necessary to speed up the privatization process and contribute to this in different ways. The first and most important thing is that, because the citizens cannot afford to buy the land they should be divided equally for free to all citizens. Although we argue that it is free, the state will get about 49 million Lari per year.
Q: How?
A: There is a land tax which a person pays when he takes possession of land, plus net income, and the registry registration and other indirect costs. Therefore we will start land privatization and the establishment of private property. In any case we are not talking about lands of strategic importance, such as forests, cultural gardens, etc. I mean agricultural lands that should not be handled by the state, but should be given to the people who will cultivate the land. Currently Georgia uses approximately 20% for agricultural programs and tries to develop agriculture this way. What kind of fertilizer should the farmers use to get the maximum result? In order to increase the production it is a necessary condition to increase the amount of cultivated land.
Therefore, it is proposed to transfer the land free of charge to the citizens of Georgia. When a farmer has land, and land next to him is owned by the state who sells it for 5 tetri, it means that the farmer’s land is not valued at more than 5 tetri, therefore we get poor farmers. It was found that when the farmer wishes to obtain credit for the land, banks do not lend money. Currently the state does not sell the lands, but if we consider that the state has 80% of land, there is an expectation that sooner or later the state will sell it. The government says that it will not sell but it turns out to be sold to foreigners as locals cannot buy land because of such conditions. When there is an expectation that the land will be sold at a very cheap price, naturally in the market there grows an expectation of low prices.
Q: Why should the state fear selling the land to foreigners?
A: The land is an important product and should be in the hands of the locals. But if we say that the foreigners are only interested in the price then we should regulate price. Georgians in South Ossetia before the war did not own lands and this caused the loss of land. Accordingly, privatization is good for security reasons too. If 90% of the land was in the hands of the citizens, the occupation would be a temporary arrangement which could be more easily resolved because it is owned by a citizen. Private property is priceless in value and is the foundation of defense.
If there is a fear that foreigners will not by the land then tell the citizens of this land it is absolutely free of charge and give these people the opportunity to buy these lands for agriculture.
Q: What is international practice in selling the lands to foreigners?
A: When the Berlin Wall fell Germans actually managed to transfer the land to its citizens. Transfer means that people are not spending money this way but instead money circulates. There are a number of mechanisms for that, when money goes back into the economy. People did not spend money to buy the land but the money was in circulation as it was gradually transferred to private ownership. But West Germany was rich and it helped a lot, besides they attracted foreign investments that developed East Germany. When Germany became rich and developed, foreigners could no longer be competitive on the German market and they left. Because every business is trying to go where it is cheaper, the lands are in the hands of the Germans. As a result, Germany has developed quite well, and now the foreigners are no longer allowed to buy the land, and they have a number of regulations which must be followed if a foreigner wants to buy. But these lands are privately owned and not by the state.
Q: How will European Integration speed up the process?
A: Private property will be established, which means that Georgia will be richer in terms of property, agricultural production will increase and we will have larger area cultivated. The problem lies in the fact that our country depends on imports, we have 80% of imports and 20% exports. About 50 varieties of products are exported to Europe, last year we managed to export 34 kinds of products. The Generalized System of Preferences+ (GSP +) allows for the export of 7.200 types of product to Europe without fees, but we cannot export more than 50 varieties. DCFTA is larger than GSP + and it increases the need to examine the imports and uphold standards. We will start the formation of a market economy and people will start to have more freedom. Also, people will be able to choose what they want to produce. That will increase the productivity of the state. If the land costs 5 tetri and we multiply it to hectares this will be the price of the country. If the price of the land increases, the price of the country will go up and also the farmers will get richer. People will be able to improve their conduct, banks will follow as soon as the price of land will increase and the farmers will be able to increase their lending from banks willing to give loans and make a good variety of seed which is quite expensive but essential to get the most from the land.
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