Development of sluggish Georgian securities market will be a priority, new government pledges. Georgian Stock Exchange approves the decision, for without developed security market, Georgian economy stands only on one pillar as it cannot attract the portfolio of investments that is a base of transparent capital turnover and economic prosperity.
New government of Georgia plans to make security market a priority, Giorgi Kvirikashvili, Minister of Economic and Sustainable Development of Georgia, said on April 13, 2013. He acknowledges that securities market is the only sector that did not develop in the financial sector unlike banks and insurance sectors and now government aims to develop this market in the country. Georgian economic analysts greet the news.
According to them, the classic market economy stands on two key pillars such as banking sector and security market however as Georgian security market is much below the par Georgian economy stands on one leg in fact and this should be improved as soon as possible.
According to Giorgi Loladze, Head of Georgian Stock Exchange (GSE), not inflow of Foreign Direct Investments (FDIs) but the inflow of portfolio investments [in the share capital of companies] outlines diversification of property in the country and transparent business climate.
“FDIs go everywhere including countries with dictatorship regimes where the wealth of the country is concentrated in hands of few people for you cannot trail down the origination of direct investments while portfolio investments go to the countries with fair and transparent business climate as you can watch who owns what openly, this is a principal part of democracy,” Loladze said in the interview to Georgian Journal.
Georgia is even FDIs deficient country barely attracting USD 865 million in 2012. And traditionally significant part of FDIs comes from off-shore companies registered in Virginia Island and Cyprus and nobody can say who exactly implemented the investment. As to portfolio investments there are just few in Georgia, Loladze says, and the reason is underdeveloped securities market and flabby GSE that suffers of non-transparency and negligence after liberal reforms of ex-power carried out in 2007. The reformed law allowed the before forbidden Over-the-Counter (OTC) trading system thus boosting non-transparency and shadow deals. OTC left at the traders’ discretion whether or not fix prices during the trade or only afterwards. As a consequence, almost 90% of trade moved to the OTC and the price-making got non-transparent: share prices may change by 15, 19, sometimes 64- fold per day on the same shares that makes some market analysts incline to think that economic crime including even money laundering may stand behind such strange price-making, Georgian Investment Group experts say. For example, out of GEL 735 568,835.30 the GSE traded in 2012 only GEL 8. 847 355.19 worth deals were concluded in the trade room and GEL 726 721 480 was implanted in the OTC through so called fixing method. And this is tradition since 2007. Now parliament already initiated a bill on separation the security market regulatory from the central bank and aims to streamline the legislation so as to make trade at GSE transparent.