While Georgia’s current liberal immigration framework may require some fixing, it is important that the policy debate surrounding this issue is conducted in a coolheaded, professional manner. It would be a mistake to throw the baby, Georgia’s appeal as a destination of choice for thousands of developers , out with the dirty bath water. Especially so, if this baby is sacrificed on the altar of racist sentiments harbored by certain groups within Georgian society.
CHAPTER 1: LANDING IN PARADISE
About two weeks ago, on October 24, I got a LinkedIn message from Bastian Lauer:
I have read your article “Industrial Policy as a Driver of Homecoming”. I moved to Tbilisi in August this year and want to build a developer team for my US startup in Georgia. I am originally from Germany. I would love to connect and see how we can help each other in the future.
According to his LinkedIn profile: Bastian started to develop software when he was 14 years old. At 17, Bastian began working for a Fortune 200 company and gained the corporate project experience and leadership skills to someday become a startup founder. Bastian received a Masters from the Copenhagen Business School, and is an avid learner. He has lived in seven different countries and attended four well-known universities studying international business and entrepreneurship. Having run businesses and IT projects in a startup environment, Bastian is used to executing on a shoestring budget.
Intrigued, I agree to meet Bastian for dinner at Baan Thai. Bastian tells me about his upbringing in the modest environment of a small German town in the Upper Rhine; his relatively late fascination with computers; his progression through Germany’s dual education system and apprenticeship with F. Hoffmann-La Roche; the three years he studied and traveled the world as part of the highly competitive International Business and Globe Exchange Program offered by the Copenhagen Business School (CBS); and, of course, his startups.
What brought you to Georgia? – I ask him. I do not expect a short answer, but what I get far exceeds my expectations. Bastian hands me a two-page, systematic comparison of Georgia and other international locations.
According to Bastian’s analysis, Georgia is a freelancer and developer heaven, a premium location compared with most other options, such as the Philippines, where Bastian had spent the last two years, overseeing the offshoring of software development by his US startup.
What I learn from Bastian is that Georgia and the Philippines are strikingly different in their treatment of foreign workers and entrepreneurs.
The Philippines is very attractive for international startup companies because of its large, highly capable, relatively inexpensive and English-literate workforce. And, because it is so attractive, it can afford byzantine regulations that respond to populist demands for anti-immigration laws and serve the government’s development agenda.
The Philippines’ laws and regulations are designed to squeeze those foreign companies that choose, despite all the bureaucratic hurdles, to set up shop in the country. They are meant to make sure that foreign companies do not displace local producers; hire local labor; invest as much as possible in priority sectors and regions of the Philippines economy; earn as much hard currency as possible; and pay as much as possible in local taxes and various fees to local service providers.
Georgia does none of the above. While losing its own talent due to an unrelenting process of brain drain (to Russia, Europe and further west), Georgia welcomes foreigners, whoever they are, wherever they come from, and whatever they do.
The unique practice of gifting small bottles of wine to every foreign visitor entering the country was discontinued in 2013 or 2014, but Georgia remains open and liberal. It exerts no effort to filter investors and entrepreneurs, to force (or nudge) them to work in particular “priority sectors”, to operate in particular geographic locations, and to employ or partner with locals. Georgia does not even bother with taxing foreigners. It is very easy for a freelancer to operate under the Georgian authorities’ radar if one’s clients are outside the country.
Mirroring the boom in expat freelancers/developers settling in Tbilisi, the capital’s real estate sector is beginning to see a boom of coworking space establishments. Fabrika’s Impact Hub was probably one of the first in this line of business, but many others can be found nowadays on the Coworker.com website, such as Generator 9.8, Terminal, Vere Loft, and UG Startup Factory.
Why Georgia from a personal point of view:
Why (not) the Philippines?
Georgia seems to be the cheapest and yet safest and most fun place to live. Egypt is cheaper, but not as safe.
Good for startup founders:
• Can live and work here without limitations. No visa requirement; can stay 360 days with no work permit; very low residency permit requirements; low crime, safe/peaceful.
• Most people speak English and some people even speak German
Large ICT industry served by a large pool of well-educated, English-speaking labor
Foreign employees need work visas and work permits
Rising labor costs for skilled employees
Competition from other companies in the ICT/BPO industry
Large overheads (more than 50%) on payroll due to taxes, social security and expensive office space in designated industrial parks.
Visas for foreign entrepreneurs require a large upfront commitment ($75-120,000)
Setting up a company is hard, requires registered paid up capital, license, local partners (unless the company is 100% exporting or in specific industries, such as tourism) and help by lawyers and consultants. Companies with more than 40% foreign ownership face restrictions in access to land and tax incentive programs.
Special economic zones and business parks are convenient but very expensive. In any case, companies still have to comply with all types of tax and permit requirements.
Why Georgia from a business perspective:
Entry and work visa very easy to obtain (no work permit required) which means one can hire the best developers from e.g. Ukraine or Belarus
English and German speakers available for hire
20% flat income tax and no social benefits or other payroll taxes
Can directly employ people (no requirement to have a local partner)
No BPO industry, implying less competition in hiring the best talent and low salary level for college graduates
Co-working spaces and startup scene available
100% ownership and no restrictions on foreign businesses other than for agricultural land
Easy banking and company setup
Welcome to Tbilisi, the world’s coworking hub!
CHAPTER 2: EXPELLED FROM PARADISE?
About a week after our dinner, on November 6, I got another LinkedIn message from Bastian: ‘Hey Eric, do you know anything about these changes that are coming?’
Bastian referenced a publication on Agenda.ge titled “Parliamentary committee confirms changes for residency permits for foreigners”. According to this publication, Georgia may amend the Law of Georgia on the Legal Status of Aliens and Stateless Persons, introducing serious restrictions on foreigners willing to apply for investment or labor residency permits. Such restrictions may include minimum investment thresholds for individuals seeking temporary investment residency permits, and minimum turnover and minimum salary thresholds for businesses willing to employ foreign nationals. Furthermore, permanent residency permits will only be granted after five years.
Tbilisi Mayor Kakha Kaladze justified the above measures by the need to protect Georgian interests. For example, he has criticized what he called an “immigration carousel”, in which migrants obtain residence permits by purchasing and then immediately reselling a piece of property to another migrant seeking a short-term residence permit. In line with Kaladze’s claim that migrants should be making an “adequate contribution” to the Georgian economy, Georgian parliamentarians propose that holders of short-term residence permits be automatically stripped of their permits if they sell their property.
While the current liberal immigration framework may indeed require some fixing, it is important that the policy debate surrounding this issue is conducted in a coolheaded, professional manner. The government has every right to block the “migration carousel”. At the same time, it would be a mistake to throw the baby, Georgia’s appeal as a destination of choice for thousands of developers, such as Bastian Lauer, out with the bath water. Especially so, if this baby is sacrificed on the altar of racist sentiments harbored by certain groups within the Georgian society.
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This week’s traditional Tbilinomics Tamada toast is to Georgia’s centuries-old tradition of tolerance and the somewhat less traditional virtue – patience.
About the author:
Eric Livny is Founder and President at Tbilinomics Policy Advisors. In 2007-2018, he served as President with the International School of Economics at Tbilisi State University (ISET).
By Eric Livny, Tbilinomics Policy Advisors
Coworking in Tbilisi, Georgia
12 November 2018 16:46