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Georgia Keeping Its Land Off-Limits for Foreigners

Farmers harvest grapes in Kakheti, one of Georgia’s leading agricultural regions. Georgia outlawed foreign ownership of its agricultural land, formally enshrining the ban in the constitution on September 26. Side effects of the move have already been felt in many sectors of the economy. (Photo: Asian Development Bank via Flickr, CC BY-NC-ND 2.0)

Every month Yuriy embarks on a 17-hour drive from Donetsk to Tbilisi, crossing the tense borders between the Ukrainian war zone and Georgia. He presents an array of identification papers – a Ukrainian passport, a Russian passport and Ukrainian separatist-issued documents – to get through the various checkpoints.
 
He has been hauling his belongings and home furnishings – tiles, wallpaper and even a tandoor oven – from Ukraine to get ready for his new life in Georgia. A retired coal miner, Yuriy used his savings to build a house just outside Tbilisi, far from the chaos of eastern Ukraine.
 
Still a work-in-progress, the two-story house features four bedrooms and a sauna. A rugged, heavyset man, Yuriy labors up the stairs to show the best part – an enviable view of a massive water reservoir. “But you should really come back after I get this thing going,” he said, winking conspiratorially and pointing at a moonshine contraption down in the garden.
 
Yuriy’s plans for a blissful retirement hit a snag, however, when Georgia outlawed foreign ownership of agricultural land. The government imposed a moratorium on land sales to foreigners on June 17, and formally enshrined the ban in the constitution on September 26.
 
For Yuriy this means that he cannot legally take over property from a Georgian relative, who bought it on his behalf two years ago. Preoccupied with construction, he had been putting off the paperwork since. “I did not see this coming,” Yuriy said. (He asked that his last name not be used while his legal situation is in limbo). “I spent so much money and effort on building the house, the fence, the piping for water and gas … and now I can’t own what I bought.”
 
The ramifications of the ban are larger than one man’s retirement home. Economists warn that the ban will put a damper on much sought-after foreign direct investment, now over 10 percent of Georgia’s still humble, $14-billion economy, and will hamper development of the agriculture sector, which employs over a half of the nation’s labor force.
 
The new clause in the constitution contains a vaguely worded loophole for “special cases,” and foreign investors are negotiating with the government to try to avoid a total ban. Hoping for a compromise solution, they avoid open confrontation, but privately they warn that Georgia may pay a significant price for what they perceive as a populist exercise in economic nationalism.
 
Side effects of the move have already been felt in other sectors of the economy. Georgia’s largest banks are foreign-owned, and the moratorium meant that they were not allowed to seize mortgaged land in case borrowers defaulted. That, in turn, limited the banks’ ability to offer credit for land deals.
 
After these unintended consequences emerged, authorities began making exceptions to the moratorium. In September, they began to allow banks and microfinance institutions to take over defaulted mortgaged lands, under a proviso that such properties needed to be sold within two years. But it is unclear if these exemptions will hold after the constitutional ban becomes effective.
 
The idea of the ban was born amid concerns that foreigners could, in effect, buy up the countryside if no restrictions were in place. Georgians can get protective of their land and culture, and many feel existentially threatened by the growing number of migrants now living in Georgia, especially those from the Middle East.
 
Some politicians competed in pandering to or even stoking such sentiments. “In this village alone 210 hectares of land were sold to foreigners. In a few years, 1,500 Arab families will settle here,” Kakha Kukava, the leader of the Free Georgia Party, said in a recent televised advertisement, as he stood in front of a desolate expanse of land. The ad went on to claim that ethnic Georgians will soon become a minority in their own country.
 
The governing party, Georgian Dream, has taken a more subtle approach, and argues that land, as a limited national resource, cannot be left up for grabs. Critics contend that a constitutional amendment takes matters far beyond what could have been better addressed through regulation.
 
There seems to be little justification for the land scare. Detailed records on foreign ownership of land are not available, but a 2014 study by Transparency International Georgia estimated that only 18,500 hectares of Georgian farmland was foreign-owned, a mere 0.7 percent of the country’s total agricultural territory.

Though the foreign-owned share of Georgia's land is limited, it plays a large role in the country's agribusiness. One prominent example is Italian candy giant Ferrero, of Nutella fame, that owns through a subsidiary some 3,500 hectares of land in Western Georgia producing the country’s top agricultural export, hazelnuts.

“I expect some foreign agricultural investors will have serious questions about the constitutional amendment,” said Michael Cowgill, president of American Chamber of Commerce (AmCham) in Georgia. He said that his association, while conscious of the sensitivity of the land issue, believes that such a strict ban may harm the country's economy.

“[I]t put the onus on the Georgian Government and business associations like AmCham to ensure that potential investors realize that there are (will be) exclusions that allow serious agricultural projects to go forward,” Cowgill said.

The revised Constitution does include fine print that allows government to make some unspecified, special-case concessions to be defined by specific law in the future. One rule-of-law advocacy group, the Georgian Young Lawyers’ Association, warned against giving the government such discretion, as the lack of clear criteria for exemptions creates room for unfair treatment and corruption. 

The prime minister’s office has not responded to EurasiaNet’s requests to elaborate on the principles for exceptions, but people familiar with the ongoing negotiations between investors and the authorities say that the authorities privately give assurances to large investors that they will enjoy exemptions.

Nevertheless, in public, officials take a tough line. “I’d like to make it very clear that the moratorium remains in force and sale of agricultural land to foreigners is not permitted,” Prime Minister Giorgi Kvirikashvili declared last month, attempting to dispel rumors that his cabinet was having second thoughts about the ban.

As a result of these mixed messages, investor anxiety seems set to persist until the exceptions are clearly laid out and, possibly, even after. “Even if the law offers clear exceptions for foreign investors, all of these changes will have created uncertainty, and investors hate uncertainty,” said George Welton, an economic analyst based in Tbilisi. He expects land prices to go down in Georgia as a result of a diminished investor interest.

Yuriy’s Georgian relatives, in the meantime, are laying siege to municipal offices, trying to change classification of the land to go through with the deed transfer. But Yuriy has resigned himself to the prospect of being a ghost landowner in Georgia for the foreseeable future. “I have very little trust in the Georgian government,” he said. “The good thing is that I have full confidence in my Georgian relatives.”

Giorgi Lomsadze is a freelance journalist and a frequent contributor to EurasiaNet.org's Tamada Tales blog.

Georgia Keeping Its Land Off-Limits for Foreigners

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