On October 3, the ISET Policy Institute and Zinc Network published a study that assesses potential risks associated with Russian business ownership in various sectors of the Georgian economy. It treats Russia as a “global threat actor” and thus investigates this hostile state’s exploitation of private business ownership as a hybrid threat.
The study’s authors looked at eight industries: electricity, oil and natural gas, communications, mining and mineral waters, tourism, banking, construction, and transportation.
The authors say Russian influence in the electricity sector is significant. It is manifested through direct ownership or control by Russian businesses or owners.
The oil and gas sector also exhibited noticeable influence, particularly through the operation of the Russian-owned oil retail operator, Lukoil. Additionally, Petrocas Fuel Services Georgia also had Russian connections in the past.
In the communications sector, the influence is considered moderate. In includes the business interests of MP Pridon Injia and the past connections of Veon Georgia (Currently operating under the brand of Cellfie, formerly known as Beeline).
Similarly, in the mining and mineral waters sectors, the study considers the Russian influence as moderate through the Russian license ownership of IDS Borjomi and RMG.
The study outlines six specific “high severity level” risks associated with Russian citizens or companies owning businesses in Georgia. Firstly, it argues that such ownership could increase Russia’s political influence over Georgia due to the interconnected interests of Russian political and business elites.
Secondly, it highlights the risk of exporting corruption, including tax evasion, money laundering, and exploiting public procurement systems, given the history of corrupt practices by Russian businesses in Georgia and neighboring regions.
Thirdly, the analysis shows that economic dependency engenders risks of economic manipulation, including price distortions.
Additionally, the study points to the potential for espionage, whether commercial, political, or involving personal information, citing empirical evidence of connections between Russian business operators like Yandex Go and Russian intelligence agencies.
Furthermore, the study identifies sabotage as another potential risk arising from Russian business ownership in Georgia.
It also mentions the risk of sanctions and sanctions evasion, considering the existing global sanction regimes targeting Russia and Russia-affiliated businesses.
The study offers three recommendations:
- Studying the Potential Impact of Adopting FDI Screening Mechanism: According to the study, many countries, constituting at least one-third of the world, have already implemented various investment review procedures. These procedures vary widely, including reviews focused solely on Critical Infrastructure (CI), mechanisms targeting inward Foreign Direct Investments (FDIs) from potentially hostile state actors meeting specific criteria, and investment review processes with retrospective authority. For Georgia, the study suggests an ex-ante screening mechanism for the investments of Russian origin in critical sectors, which could be triggered when an owner acquires at least 10% of shareholding rights.
- Considering Russian Ownership Threats in National Security Documents: Ensure that the scope of the FDI screening mechanism aligns with the recognition of risks from Russian business ownership in Georgia, as outlined in key security documents like the National Security Concept and the National Threats Assessment Document. These documents should provide the foundation for the rationale behind the screening tool.
- Fostering Critical Infrastructure Reform: Facilitate the adoption of Critical Infrastructure reform in Georgia to establish a legal framework for identifying and safeguarding critical infrastructure. This reform also aligns with the goal of potentially implementing an investment review procedure in the country.
The study emphasizes that Russian business ownership in Georgia is just one aspect of Russia’s overall economic leverage. The authors say that assessing the broader economic dependency on Russia, including Russian business ownership, is essential to grasping the extent of the issue.
Additionally, in parallel to Georgia seeking alignment with the Euro-Atlantic space, emerging global actors like China have also become potential economic and strategic partners. Therefore, the study says. it’s crucial to explore international practices for safeguarding national security against potentially malign influences, such as those related to ownership, stemming from the increased presence of such economic interest groups gaining local control.