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Sunday, May 15, 2005

The Republic of Georgia

Much money has been lost in the new Russia thanks to the illusion of a place where free trade exists. Putin can call it whatever he likes, but the people can see the government is involved at every corner. There is no formal tax code, if someone wants to start a company they have to sit down with a tax minister and negotiate the terms. No wonder Yukos owed so much in back taxes, the tax minister can change how much a company owes in taxes at will. Now the Russian government is in the business of selling oil. Those who see Lukoil gas stations (Putin is part owner) popping up, should get the message, either you partner with the government or you won't have a business. Most of the other former soviet states are no better taking after mother Russia's lead.

The republic of Georgia has decided to break the cycle under the wing of their newly elected 36 year old president, Mikheil Saakashvili. The country is doing several things that no other former soviet state is doing.

  1. The government is looking to make itself simpler and smaller; several government ministries will no long exist by 2007.
  2. As of January 1, 2005 the new simplified tax code is in effect. It will no longer be a progressive tax, a flat tax has been implemented for simplicity and to prevent government corruption.
Being that so few countries around the world are taking such measures, I think Georgia will be an interesting experiment to watch. For the more daring less patient I think Georgia is a great investment right now. The nation is taking steps to allow people to trade freely, so you can expect capital from countries that burden trade around the world to flow into Georgia.

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