CNBC Transcript: Interview with Giorgi Kvirikashvili, the Prime Minister of Georgia

Following are excerpts from the transcript of a CNBC interview in Davos by Hadley Gamble with Giorgi Kvirikashvili, Prime Minister of Georgia.

HG: Your Excellency, thank you so much for joining CNBC. Now, the World Bank is projecting that you guys are going to grow your economy over the next three years, and you're telling me that this low energy price environment is going to be really good for Georgia. Explain that.

GK: Well I would say there is a full spectrum of reasons why we should believe that South Caucasus, and particularly Georgia, will be the place of very strong economic growth in the nearest years, I would say decade, because Georgia is strategically located in between Europe and Asia. This is a gateway for Europe to Asia, and vice versa. There are important projects such as Silk Road reconstruction, One Belt, One Road initiative, that brings new dynamics from Asia to Europe and vice versa. Europe needs new drivers for growth, and Georgia is definitely the place that could link Europe with Asia, and there are a lot of important projects going on in Georgia, such as infrastructure modernisation, this is railway modernisation, this is a new Baku-Tbilisi-Kars railway project, which would link Azerbaijan, Georgia and Turkey, this is a new deep-sea port construction on the Black Sea shore, and also a lot of large investment projects such as hydropower projects, and Georgia is a place, again, with excellent geographic location, the most liberal and open economy, which is most important driver for our growth. We have free trade agreements with all our neighbours, we have recently signed an agreement with the European Union on launching the free trade relations, this is called Deep and Comprehensive Free Trade Area agreement, which brings not only liberalisation of the tariffs but also institutional and regulatory reform of Georgia. So Georgia will position itself as a European country with a relatively lighter regulatory framework, and which is a place with relatively low energy costs, relatively low labour cost, excellent business environment, and we are further liberalising the environment. This year we will be abolishing profit tax, and we will be moving to the Estonian model and we will tax only distributed earnings. So this is a place which opens itself to the world economy, and recently we launched the free trade negotiations with China. So particularly I can tell you that in the nearest two years we will have free trade relations with almost all the countries on the Eurasian continent. We have excellent relations with the United States, there are a lot of US investors in our country, so everything that I listed gives us a strong reason to believe that Georgia will be a place for strong economic growth. I would say that the falling of the oil prices here has a double impact on Georgia. On the one hand, we have FDI providers, oil countries, and it decreases investment appetite in those countries. On the other hand, as we industrialise the country further, of course it has some positive impacts, but overall I think that we can find internal engines of growth including opening up our economy for all the investments in the region that would bring strong economic growth for Georgia.

HG: Talk to me a little bit more about that relationship with Europe. Your predecessor said, just a year ago, here in Davos, that the goal was really to transform Georgia into a European state, but given the fact that so many people today feel that the EU is facing what really amounts to an existential crisis, you have the migration crisis, you also have security concerns, you also have border concerns, as well, really, for the first time, does that change the equation for you in terms of your goals for Georgia?

GK: First of all, I would like to cheer up Europeans. I see that the mood in Davos this year is not the best, but I think there are more reasons for optimism for Europe than pessimism, because I think Europe achieved a lot, and people are taking many things for granted. So I think we need to tell, and European leaders should tell European populations more about the positive sides of the European Union, and we believe that there are more reasons to believe that Europe will be a place for economic growth than the opposite, because even the migration crisis, I think we need to look for the positive side. I think the issue is integration of these people into the European societies. The issue is giving them necessary skills, language skills, the work skills, to integrate them into the European economies. I think these people are willing to give more than take, so we believe that in the medium run, and in the longer run, this will be a significant source for economic growth for Europe. Of course this is a sensitive issue and we understand the cultural sensitivities, but we think that in the medium run this will be a positive event for Europe. As for Georgia, we think that Europe is the historic place for Georgia. Culturally, Georgians, we are Europeans. We are a European country, and after signing our association agreement, this is another incentive for us to open up European perspective for Georgia. For this, we need to transform our political system, our economy, into the European economy and European political system, and there is a huge progress going on in Georgia, so we believe that, again, this will be, we will stay very consistent on the European path, this is a strategic goal for us, and we believe that by transforming Georgia into a truly European state, it will bring new dynamics to South Caucasus and particularly to Georgia.

HG: Another country that's really re-entering the global community is Iran, and you're right there on the Silk Road. You're very well placed to take advantage of what's going to happen next. Give me a sense of what kind of investments we're going to see between Georgia and Iran.

GK: We perceive the process of opening Iran to the entire world very positively. We think that this is a big success, that the deal was reached. We are no longer cautiously, and we are already optimistic, about the future relations with Iran. Culturally we have a tradition of trade and investment relations with Iran, and we think that this will be another source of economic growth and cooperation in Europe, and not only Europe, and especially for Georgia, it brings very good opportunities, because Georgia is the closest European country for Iran, which means that we can be a gateway for Iran to trade with Europe and vice versa, of course. Georgia has free trade relations with Europe, it can be a place for Iranian manufacturing investors to invest there in manufacturing facilities, to export goods further to Europe. So I think this is a very good driver for the future economic growth.

HG: Talk to me a little bit about the geopolitical picture, because you say that, geographically at least, Georgia is very well placed to take advantage of both Europe and also trade with Asia and Iran. When you look at what's happened with Russia over the last couple of years, we've seen major economic sanctions really hitting their economy, but it hasn't stopped their expansion as to foreign policy, and if you look at it a different way, the United States and Europe are even trying to get on board with the Russians in terms of taking care of the crisis, for example, in Syria, as well. Is this the definition of realpolitik? I mean, because if you look at what Georgia's relationship has evolved to, essentially you never stopped trade, did you, with Russia, even amidst all these foreign policy differences?

GK: We stopped trading in-, actually, Russia stopped trading with Georgia-,

HG: But not at the time-,

GK: In 2006, and we had several years of absence of trade between us. Today we have several formats of dialogue with Russia. The official format is Geneva Discussion Format, where we discuss our bilateral relations, and another informal format is a Special Representative of Georgian Prime Minister to talk with the Deputy Minister of Foreign Affairs of Russia. We have some positive dynamics in the economy and in trade, we trade now with Russia, although we no longer depend on the single Russian market and we are quite diversified today, we have 30% of our trade turnover goes to Europe, and Russia counts for about 10% of our trade turnover, but we are still quite dependent in agriculture on the Russian market. There are some positive dynamics. We are trying to decrease the tensions with Russia in order to allow ourselves to attract investments, because stability and security is the main prerequisites for any investment, but on the other hand there is little dynamics in the political dimensions. Russia still signs agreements with Abkhazia, South Ossetia, against all logic, but this is where we are, we will continue a pragmatic approach, we will continue from our side to decrease the tensions, and we welcome, of course, the recent decision of the Russian government to ease the visa regulation for Georgian citizens. This was a positive step, and it is appreciated by Georgian government and people. So I think we need to increase the dialogue with Russia, and we need to somehow come out of this crisis that we have been in for so many recent years. Again, from our side, we will try to stay consistent in our constructive approach. Let's see.

HG: What would your message, then, be, for President Putin?

GK: Well, I think that first of all, Russia should honour Georgia's territorial integrity and sovereignty. This is the main entry condition to be met by the Russian side in order to start normal relations with Russia. Honestly, we don't see enough political will today in Russian leadership to resolve this crisis, but despite all that, we have longstanding tradition of the relations with Russia, and I don't think that we need to scratch out everything. So we believe that with our constructive approach, there will be a time where Russia will change its approach, but we don't see signs of that in the nearest future, unfortunately, but again we will try to ensure enough stability for Georgia to allow ourselves to grow and to attract investments, including from Russia.

HG: Your Excellency, thank you so much for joining CNBC.

GK: Thank you very much for having me here.