Business in Georgia pins hopes on new government, Russia ties

* Fears of instability fade after election

* Business seeks policy details, end to monopolies

* Restoration of Russia ties would boost exports

By Margarita Antidze

TBILISI, Oct 9 (Reuters) - Power in Georgia has peacefullychanged hands after a tense parliamentary election but as thenext government takes shape under billionaire BidzinaIvanishvili, the likely prime minister, businesspeople facepolitical uncertainty.

Ivanishvili has no experience of government, presides over asix-party coalition which he says could splinter in parliament,and faces months of uneasy cohabitation with President MikheilSaakashvili, a political rival.

Business chiefs are therefore eager to know how he plans tofulfil promises to relax government control of business, createjobs, raise pensions and welfare benefits, offer free healthcareand education, and improve ties with Russia.

"All businessmen have mixed feelings," said Fadi Asli, headof the International Chamber of Commerce in Georgia.

"On the one hand we are very optimistic, and on the otherhand very scared, because we don't know what will happentomorrow."

Ivanishvili, 56, is taking over an economy that has changedenormously since Georgia - which lies on an oil and gas transitroute from the Caspian Sea to Europe - became independent as theSoviet Union fell apart in 1991.

Saakashvili, a 44-year-old U.S. trained lawyer who rose topower in the bloodless Rose Revolution of 2003 that swept asidethe former Soviet-old guard, implemented liberal economicreforms, attacked corruption and attracted foreign investment.

Construction, tourism and financial services generated highgrowth from 2004 to 2007 and 24-hour electricity was restored inthe country of 4.5 million.

Petty corruption was all but eliminated from the police andcustoms service, public services improved and tax collectionbecame more efficient. In the World Bank's latest Doing BusinessIndex Georgia was the top-rated country in transition.


But a disastrous 2008 five-day war with Russia - which usedto be one of Georgia's biggest trading partners - and the globalfinancial crisis knocked the economy off course.

It has been growing again since 2010 and the governmentexpects 5.5-6.0 percent GDP growth this year and annualinflation of 6 to 7 percent, after 7 percent growth and 2percent inflation last year.

However, Georgia faces economic challenges, including a high15 percent jobless rate and economic output per head that, at$5,600 last year, was lower than many former Soviet countries.

Parts of Saakashvili's business legacy are also seen astoxic. Businesspeople criticised him for creating monopolies,for establishing state control over firms and for failing toprovide clarity in tax law.

"Major businesses, like importers of oil products and food,were in the hands of people with connections to seniorgovernment officials," Gogi Topadze, the head of the Kazbegibeer-producing company, said.

"I'm sure it won't be like that any more as it has been oneof the reasons for the ruling party's defeat in the election."

Topadze and others hope the government will make tax lawsclearer, cut business tax rates and promote small business.

Mikheil Chkuaseli, CEO of Geoplant, a tea-producing company,says local businesses want a fairer deal from the newgovernment. "We have peace, but we want justice now," he said."Monopolies should be eliminated."

Ivanishvili has promised not to meddle in private businessand to create a strong even-handed anti-monopoly service.

"I promise that no one will be able to blackmail privateentrepreneurs," Ivanishvili told businessmen at a meeting lastFriday. "An unprecedented business environment will be createdin Georgia."


Ivanishvili made most of his estimated $6.4 billion fortunein Russia and has experience and contacts there which he saysoffer Georgia a better chance of improved trade ties with Moscowthan under Saakashvili. He told business leaders he hoped traderelations with Russia would be restored "quite quickly".

If Georgia were to mend economic ties with Russia, it mightbe able to rebuild bilateral trade which has slumped to just 5percent of total trade from a peak of 20 percent in 2006, beforea Kremlin crackdown on Georgian wine and mineral water imports.

"We are at a point where there is no relationship withRussia, but I think an upside (in relations) is there," saidIrakly Gilauri, CEO of Bank of Georgia Holdings , thecountry's leading bank.

Gilauri saw scope for a rebound in foreign direct investment(FDI) into Georgia, which at $1.1 billion last year was littlemore than half its 2007 peak of $2 billion.

"The opportunities are quite wide. FDI may increase becauseof the Russian market opening up. The market could open up onevery front," he told investors on a conference call.

However, shares in Bank of Georgia, the only liquid Georgianstock trading on the London Stock Exchange, slumped 6.6 percentthe day after the election. They have not yet recovered,suggesting that investors may not share Gilauri's upbeat view.

Yet others remain optimistic.

"If prospects for the Russian market opening up seemeddistant, recent political events in Georgia have made this morerealistic - we can only welcome this," said GeorgyMargvelashvili, the president of wine maker Tbilvino.

The Russian market made up half of Tbilvino's total salesbefore relations between the two countries soured in 2006,though the company has managed to reorient its exports towardsother countries and has doubled exports.

"I know that the Russian market is ready and the businesselite in Russia is waiting for Georgian wine. Trade will berestored immediately once a political decision is taken."

(Additional reporting by Carolyn Cohn in London; Editing byTimothy Heritage, Douglas Busvine and Andrew Osborn)


Messaging: margarita.antidze.thomsonreuters.com@reuters.net))