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Armenia

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

Most of Armenia’s state-owned enterprises (SOEs) were privatized in the 1990s and early 2000s, but SOEs are still active in a number of sectors. SOEs in Armenia operate as state-owned closed joint stock companies that are managed by the Department of State Property Management and state non-commercial organizations. There are no laws or rules that ensure a primary or leading role for SOEs in any specific industry. Armenia is party to the WTO Government Procurement Agreement, and SOEs are covered under that agreement. SOEs in Armenia are subject to the same tax regime as their private competitors, and private enterprises in Armenia can compete with SOEs under the same terms and conditions. The Department of State Property Management maintains a public list of state-owned closed joint stock companies on its website.

8. Responsible Business Conduct

Comprehension of responsible business conduct (RBC) in Armenia is still developing, but several larger companies with foreign ownership or management have been operating under the concept in recent years. Initiatives, where they do exist, are primarily limited to corporate social responsibility efforts. However, RBC programs that do exist are viewed favorably. Some civil society groups and business associations are playing a more active role to promote RBC and develop awareness. Major pillars of corporate governance in Armenia include the Law on Joint Stock Companies, the Law on Banks and Banking Activity, the Law on Securities Market, and a Corporate Governance Code. International observers note inconsistencies in this legislation and generally rate corporate governance practices as weak to fair. Specific areas for potential improvement cited by the local business community include improving internal and external auditing for firms, enhancing the powers of independent directors on company boards, and boosting shareholders’ rights. Armenia has outlined commitments to corporate governance reforms, including with regard to mandatory audit, accounting, and financial reporting, within the context of an ongoing Stand-By Arrangement with the International Monetary Fund.

Armenia joined the Extractive Industries Transparency Initiative (EITI) in March 2017 as a candidate country. The first EITI national report for Armenia was published in January 2019. As part of its EITI membership aspirations, the government in March 2018 adopted a roadmap to disclose beneficial owners in the metal ore mining industry. Relevant implementing legislation, including for beneficial ownership disclosure, was adopted in 2019.

Armenia is not a signatory to the Montreux Document on Private Military and Security Companies, and no Armenian party is a member of the International Code of Conduct for Private Security Providers’ Association.

Domestic laws and regulations related to labor, employment rights, consumer protection, and environmental protection are not always enforced effectively. These laws and regulations cannot be waived to attract foreign investment.

9. Corruption

10. Political and Security Environment

Armenia has a history of political demonstrations, most of which have remained peaceful. There have been some instances, however, of violent confrontations between police and protesters, or of attacks on government officials. The last major violent protest occurred in November 2020 following the release of a tripartite ceasefire statement by Armenia, Azerbaijan, and Russia, which brought an end to the fall 2020 intensive fighting in and around NK. Individuals and groups displeased with the announcement stormed government buildings and destroyed property. Protestors assaulted the speaker of parliament in the streets of Yerevan and broke into the prime minister’s residence. Since the release of the tripartite statement, groups opposed to the government have organized regular marches and rallies in Yerevan that have remained largely peaceful and caused minimal disruption to ordinary business. Pro-government groups have also organized peaceful rallies, although less frequently. Throughout Armenia, protestors use road blockades as a common tactic to register discontent, most often with the government over community-level issues. The disruption created by such road blockades is usually minimal. Protests have not resulted in any damage to projects of installations of international businesses. It is unlikely that civil disturbances, should they occur, would be directed against U.S. businesses or the U.S. community.

During 44 days of intensive fighting from September 27 to November 10 in 2020 involving Azerbaijan, Armenia, and Armenia-supported separatists, significant casualties and atrocities were reported by all sides. After Azerbaijan, with Turkish support, reestablished control over four surrounding territories controlled by separatists since 1994, a Russian-brokered ceasefire arrangement announced by Azerbaijan and Armenia on November 9 resulted in the peaceful transfer of control over three additional territories to Azerbaijan, as well as the introduction of Russian peacekeepers to the region. The ceasefire has largely held, with frequent but localized violations. Tensions remain high, particularly along the international border, which has not been fully demarcated.

Russian forces have played a role in controlling access along highways near the border and into the Nagorno-Karabakh region from Armenia and Azerbaijan. The Azerbaijani government has suspended or threatened to suspend the operations of U.S. companies in Azerbaijan whose products or services are provided in the area of Nagorno-Karabakh currently under the administration of the Russian peacekeepers and has banned the entry into Azerbaijan of some persons who have visited NK. The U.S. government is unable to provide emergency services to U.S. citizens in and around NK as access is restricted.

11. Labor Policies and Practices

Armenia’s human capital is one of its strongest resources. The labor force is generally well educated, particularly in the science, technology, engineering, and mathematics fields. Nearly 100 percent of Armenia’s adult population is literate. According to official data, enrollment in secondary school is over 90 percent, and enrollment in senior school (essentially equivalent to American high school) is approximately 85 percent. Despite this, official statistics indicate a high rate of unemployment, at around 20 percent. Unemployment is particularly pronounced among women and youth, and significant underemployment is also a problem.

Considerable foreign investment in Armenia has occurred in the high-tech sector. High-tech companies have established branches or subsidiaries in Armenia to take advantage of the country’s pool of qualified specialists in electrical and computer engineering, optical engineering, and software design. There is a shortage of workers with vocational training. About 20 percent of the non-agricultural workforce is employed in the informal economy, primarily in the services sector. Armenian law protects the rights of workers in the formal sector to form and to join independent unions, with exceptions for personnel of the armed forces and law enforcement agencies. The law also provides for the right to strike, with the same exceptions, and permits collective bargaining. The law stipulates that workers’ rights cannot be restricted because of membership in a union. It also differentiates between layoffs and firing with severance. According to some reports, labor organizations remain weak because of employer resistance, high unemployment, and unfavorable economic conditions; collective bargaining is not common in Armenia. Experts observe that the right to strike, although enshrined in the constitution, is difficult to realize due to mediation and voting requirements. Labor unions are generally inactive with the exception of those connected with the mining and chemical industries, and a few small grassroot movements to create unions in the fields of education and public health have sprung up over the last few years. Labor laws cannot be waived to retain or attract investment.

The current Labor Code is considered to be largely consistent with international standards. The law sets a standard 40-hour workweek, with 20 days of mandatory annual paid leave. However, there are consistent reports that many private sector employees, particularly in the service sector, are unable to obtain paid leave and are required to work more than eight hours a day without additional compensation. The treatment of labor in FEZs is no different than elsewhere in the country. Employers are generally able to adjust employment in light of fluctuating market conditions. Severance in general does not exceed 60 working days. Benefits for workers laid off for economic reasons are mostly limited to receiving qualification trainings and job search assistance.

Individual labor disputes can usually be resolved through courts; however, the courts are often overburdened, causing significant delays. Collective labor disputes should be resolved through collective bargaining.

Since 2019, Armenia’s Health and Labor Inspection Body (HLIB) has gradually begun to exercise more robust enforcement of labor legislation and fulfill its oversight function. Its full mandate came into force in July 2021. Throughout 2021, the government continued to adopt inspection checklists and risk assessment methodologies in various sectors to enable HLIB to carry out inspections. HLIB also continued to add new inspectors throughout the year.

Amendments to the Labor Code that entered into force in 2015 clarified the procedures for making changes in labor contracts and further specified the provisions required in labor contracts, notably those relating to probationary periods, vacation, and wage calculations.

The current legal minimum wage is AMD 68,000 (approximately $135) per month. Most companies pay an unofficial extra-month bonus for the New Year’s holiday. Wages in the public sector are often significantly lower than those in the private sector.

Azerbaijan

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

In Azerbaijan, state-owned enterprises (SOEs) are active in the oil and gas, power generation, communications, water supply, railway, and air passenger and cargo sectors, among others.  There is no published list of SOEs.  While there are no SOEs that officially have been delegated governmental powers, companies such as the SOCAR, Azerenerji (the national electricity utility), and Azersu (the national water utility) – all of which are closed joint-stock companies with majority state ownership and limited private investment – enjoy quasi-governmental or near-monopoly status in their respective sectors.

SOCAR is wholly owned by the government of Azerbaijan and takes part in all oil and gas activities in the country.  It publishes regular reports on production volumes, the value of its exports, estimates of investments in exploration and development, production costs, the names of foreign companies operating in the country, production data by company, quasi-fiscal activities, and the government’s portion of production-sharing contracts.  SOCAR is also responsible for negotiating PSAs with all foreign partners for hydrocarbon development.  SOCAR’s annual financial reports are audited by an independent external auditor and include the consolidated accounts of all SOCAR’s subsidiaries, although revenue data is incomplete.

There have been instances where state-owned enterprises have used their regulatory authority to block new entrants into the market.  SOEs are, in principle, subject to the same tax burden and tax rebate policies as their private sector competitors.  However, in sectors that are open to both private and foreign competition, SOEs generally receive a larger percentage of government contracts or business than their private sector competitors.  While SOEs regularly purchase or supply goods or services from private sector firms, domestic and foreign private enterprises have reported problems competing with SOEs under the same terms and conditions with respect to market share, information, products and services, and incentives.  Private enterprises do not have the same access (including terms) to financing as SOEs.  SOEs are also afforded material advantages such as preferential access to land and raw materials – advantages that are not available to private enterprises.  There is little information available on Azerbaijani SOEs’ budget constraints, due to the limited transparency in their financial accounts.

8. Responsible Business Conduct

 

Responsible business conduct (RBC) is a relatively new concept in Azerbaijan.  Producers and consumers tend not to prioritize responsible business conduct, including environmental, social, and governance issues.  No information is available on legal corporate governance, accounting, and executive compensation standards to protect shareholders in Azerbaijan.  Larger foreign entities tend to follow generally accepted RBC principles consistent with parent company guidelines and aim to educate their local partners, who generally consider basic charitable donations and paying taxes as acts of social responsibility.

AmCham established a Corporate Social Responsibility (CSR) Committee in October 2011 to encourage companies to embrace social responsibility through activities and dialogue with relevant stakeholders.  AmCham also published a corporate social responsibility guide on CSR for businesses in Azerbaijan.  In 2011, the Economy Ministry established standards for corporate governance, which included an evaluation methodology for these standards and a code of ethical behavior.  The Economy Ministry has been tasked with explaining the importance of corporate governance standards to entrepreneurs.  Some companies report that government restrictions on NGO registration have complicated CSR corporate social responsibility efforts.

Azerbaijan’s Extractive Industries Transparency Initiative (EITI) status was downgraded from “compliant” to “candidate” in April 2015, due to concerns about Azerbaijani civil society’s ability to engage critically in the EITI process.  Following the EITI Secretariat’s evaluation in March 2017 that Azerbaijan had not sufficiently implemented required “corrective actions,” Azerbaijan withdrew from the EITI and established a domestic Extractive Industries Transparency Commission in April 2017 to ensure transparency and accountability in the extractive industries of the country.  The Commission has published two Reports on Transparency in the Extractive Industries but has not met since 2019 and does not conform with EITI standards.

Azerbaijan has signed and ratified the Paris Climate Agreement.  In its 2017 Nationally Determined Contributions, the country outlined climate change mitigation actions in several sectors and set a goal to reduce carbon emissions by 35 percent (from 1990 levels) by 2030.  

9. Corruption

Corruption is a major challenge for firms operating in Azerbaijan and is a barrier to foreign investment despite government efforts to reduce low-level corruption.  Azerbaijan does not require that private companies establish internal codes of conduct to prohibit bribery of public officials, nor does it provide protections to NGOs involved in investigating corruption.  U.S. firms have identified corruption in government procurement, licensing, dispute settlement, regulation, customs, and taxation as significant obstacles to investment.

The Azerbaijani government publicly acknowledges problems with corruption but does not effectively or consistently enforce anticorruption laws and regulations.  Azerbaijan has made modest progress in implementing a 2005 Anti-corruption Law, which created a commission with the authority to require full financial disclosure from government officials.  The government has achieved a degree of success reducing red tape and opportunities for bribery through a focus on e-government and government service delivery through centralized ASAN service centers, which first opened in February 2013.  ASAN centers provide more transparent, efficient, and accountable services through a “one window” model that reduces opportunities for rent-seeking and petty government corruption and have become a model for other initiatives aimed at improving government service delivery.

Despite progress in reducing corruption in public services delivery, the civil service, public procurement apparatus, and the judiciary still suffer from corruption.  Tax reforms announced in January 2019 were aimed partially at reducing corruption in tax administration and received praise from the local business community.

Azerbaijan signed and ratified the UN Anticorruption Convention and is a signatory to the Council of Europe Criminal and Civil Law Conventions.  Azerbaijan is not currently a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

10. Political and Security Environment

On multiple occasions in 2019 and 2020, authorities selectively blocked mobile and fixed-line internet access, temporarily restricted access to foreign media and social networking sites and imposed blocks on virtual private network (VPN) services, apparently in response to political protests and as part of national restrictions during and after Azerbaijan’s armed conflict with Armenian forces in September-November 2020.  Radio Free Europe/Radio Liberty are among the sites permanently blocked in Azerbaijan.  The increase in frequency and lack of transparency regarding internet disruptions raise serious concerns about future Azerbaijani government efforts to control access to information in ways that impede foreign business interests.  

There have been no known acts of political violence against U.S. businesses or assets, nor against any foreign owned entity.  It is unlikely that civil disturbances, should they occur, would be directed against U.S. businesses or the U.S. community.

During 44 days of intensive fighting from September 27 to November 10, 2020, involving Azerbaijan, Armenia, and Armenia-supported separatists, significant casualties and atrocities were reported by all sides.  After Azerbaijan, with Turkish support, reestablished control over four surrounding territories controlled by separatists since 1994, a Russian-brokered ceasefire arrangement announced by Azerbaijan and Armenia on November 9 resulted in the peaceful transfer of control over three additional territories to Azerbaijan, as well as the introduction of Russian peacekeepers to the region.  The ceasefire has largely held, but tensions remain high, particularly along the international border, which has not been fully demarcated.  

Russian forces have played a role in controlling access along highways near the border and into the Nagorno-Karabakh region from Armenia and Azerbaijan.  The Azerbaijani government has suspended or threatened to suspend the operations of U.S. companies in Azerbaijan whose products or services are provided in the area of Nagorno-Karabakh in which Russian peacekeepers are currently deployed and has banned the entry into Azerbaijan of some persons who have visited Nagorno-Karabakh.  The U.S. government is unable to provide emergency services to U.S. citizens in and around Nagorno-Karabakh as access is restricted.

11. Labor Policies and Practices

The 1999 Labor Code regulates overall labor relations and recognizes international labor rights.  The work week generally is 40 hours.  The right to strike exists, though industrial strikes are rare.  Azerbaijan is a member of the International Labor Organization (ILO) and has ratified more than 57 ILO Conventions.  In practice, labor unions are strongly tied to political interests of the government.  Collective bargaining is not practiced.  Azerbaijan has regulations to monitor labor abuses, health, and safety standards in low-wage assembly operations, but enforcement is less effective.

Employment relations are established by an employment contract, which, in most cases, does not necessarily indicate a fixed term of employment.  While a number of workers still work without contracts in Azerbaijan’s informal economy, recent tax and customs reforms have provided incentives for individuals to register their employment to benefit from state financial support.  Under national law, an employer must give an employee two months’ notice of termination, with certain exceptions.  An employee can terminate his/her employment contract at any time but must give one month’s notice.  Upon termination of formally registered employment, employers must pay departing employees monetary compensation for unused vacation leave.  A formally registered employee who becomes unemployed is entitled to 70 percent of his/her average monthly wage, calculated over the past 12 months at the last place of work.  An employee must have worked under a valid labor contract in order to obtain unemployment benefits.  The law “On Unemployment Insurance” signed in August 2017 allows for payments to unemployed individuals registered with the State Employment Fund.  

Azerbaijan has an abundant supply of semi-skilled and unskilled laborers.  An estimated 35 percent of the Azerbaijani population works in agriculture, although this sector only contributes around 6 percent of the country’s GDP.  The construction sector tends to use temporary and contract workers; reportedly many of these workers’ agreements are not formally registered with the government.  The relatively limited supply of highly skilled labor is one of the biggest challenges in Azerbaijan’s labor market.  The average monthly wage as of January 2022 was AZN 766 (USD 451), and the official minimum wage increased in 2022 to AZN 300 (USD 176) per month, compared to the previous level of AZN 250 (USD 147) per month.  The Ministry of Labor and Social Protection took measures to avoid unjustified dismissals, redundancies of employees in a public sector, as well as to preserve salaries of the employees sent on vacation and ensured expansion of unemployment insurance benefits, and the establishment of a proactive support mechanism in this area.  Part of the reform program was to expand services to ensure employment, ensure transparency and prevent corruption.  The number of legalized labor contracts increased by 30 percent during 2017-2021. 

In Azerbaijan, the COVID-19 crisis has deepened socio-economic vulnerabilities and widened disparities across regions, firm sizes, and between the formal and informal sides of the economy.  To respond to the pandemic, a Presidential Decree outlining the emergency response package of measures was signed in March 2020, and the COVID-19 Response Action Plan was agreed by the Cabinet of Ministers in April 2020.  The government extended and scaled up existing support programs and designed new schemes. The initial size of the support package in 2020 was AZN 3.3 billion (around 4.8 per cent of GDP), later increased to include additional tax benefits and a one-off extension of social assistance. The package included social protection measures such as direct cash transfers and an expansion of unemployment insurance to support the unemployed and informal workers, more targeted social assistance to support low-income households and vulnerable groups, the creation of additional public jobs, and energy and education subsidies. The main interventions to support businesses were cash payments to entrepreneurs and employers in COVID-19-affected areas, interest rate subsidies and guarantees for both new and old loans in affected sectors, as well as support to the transport sector and subsidized government rents.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2020 $42,607 2019 $48,048 .
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data
Host country’s FDI in the United States ($M USD, stock positions)  

N/A

BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP  

No reliable data

2020 77% UNCTAD data available at

https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx  

* Source for Host Country Data:  Azerbaijan State Statistical Committee

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Thousands)
Inward Direct Investment Outward Direct Investment
Total Inward $4,795,271 100% Total Outward $825,793 100%
United Kingdom $1,586,614 33% Turkey $280,542 34%
Turkey $700,186 14.6% United Kingdom $122,306 15%
United States $507,391 5 10.6% United States $65,967 8%
Malaysia $416,620 9% Georgia $64,111 8%
Cyprus $317,602 6.6% Malta $48,503 6%
“0” reflects amounts rounded to +/- USD 500,000.

*Source: Central Bank of Azerbaijan

Georgia

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

After the fall of the Soviet Union, the Georgian government privatized most state-owned enterprises (SOEs). At the end of 2013, Georgian Railways (GRW), Georgian Oil and Gas Corporation (GOGC), Georgian State Electrosystem (GSE), Electricity System Commercial Operator (ESCO), and Enguri Hydropower plant were the major remaining SOEs. The energy-related companies largely implement the government’s energy policies and help manage the electricity market. There are also a number of Legal Entities of Public Law (LEPLs), independent bodies that carry out government functions, such as the Public Service Halls.

During 2012, Georgian Railways, GOGC, GSE, and ESCO’s assets were placed under the Partnership Fund ( fund.ge ), a state-run fund to facilitate foreign investment into new projects. The fund also controlled 25 percent of shares in the TELASI Electricity Distribution Company, which it sold to private investors in 2020.

Despite state ownership, SOEs act under the general terms of the Entrepreneurial Law. Georgian Railways and GOGC have supervisory boards, while GSE and ESCO do not. The SOEs’ individual charters describe their procedures and policies. Georgia encourages its SOEs to adhere to the OECD’s Guidelines on Corporate Governance for SOEs.

The senior management of SOEs report to Supervisory Boards, where they exist (e.g., GRW, GOGC); in other cases, they report to line ministries. Governmental officials can be on the supervisory board of the SOEs, and the Partnership Fund has five key governmental officials on its board. SOEs explicitly are not obligated to consult with government officials before making business decisions, but informal consultations take place depending on the scale and importance of the issue.

To ensure the transparency and accountability of state business decisions and operations, SOEs have regular outside audits and publish annual reports. SOEs with more than 50 percent state ownership are obliged to follow the State Procurement Law and make procurements via public tender. The Partnership Fund, GRW, and GOGC are subject to valuation by international rating agencies. There is no legal requirement for SOEs to publish annual report or to submit their books for independent audit, but this is done in practice. In addition, GRW and GOGC are Eurobond issuer companies and therefore are required to publish reports. SOEs are subject to the same domestic accounting standards and rules. These standards are comparable to international financial reporting standards. No SOEs exercise delegated governmental powers.

In early 2021, the government announced it would start reforming state-owned enterprises and create a new council to develop a strategy to be implemented in 2021-2024. The goal of the reform is to bring the management of SOEs closer to higher standards of corporate governance. The first state-owned enterprise to undergo reforms will be the Georgian State Electrosystem (GSE), an electricity transmission system operator.

According to a December 20, 2021 IMF report  on Georgia ( https://www.imf.org/-/media/Files/Publications/CR/2021/English/1GEOEA2021009.ashx ), auditing, reporting, and disclosure practice in Georgia is largely consistent with international good practice. The IMF report contains concrete recommendations for further improving the financial accountability system of SOEs.

8. Responsible Business Conduct

While the concept of Corporate Social Responsibility (CSR) is a relatively new phenomenon in Georgia, it is growing. Most large companies engage in charity projects and public outreach as part of their marketing strategy. The American Chamber of Commerce in Georgia has a Corporate CSR committee that works with member companies on CSR issues. The Global Compact, a worldwide group of UN agencies, private businesses, and civil society groups promoting responsible corporate citizenship, is active in Georgia. The Eurasia Partnership Foundation launched a program on corporate social investment to promote greater private company engagement in addressing Georgia’s development needs.

The Georgian government undertook an OECD CSR policy review in 2016 based on the OECD Policy Framework for Investment. The OECD completed a follow-up Investment Policy Review assessment in 2020 and noted Georgia’s significant strides ( http://www.oecd.org/investment/oecd-investment-policy-reviews-georgia-0d33d7b7-en.htm ).

Georgia participates in the OECD Eurasia Competitiveness Program, which works with countries in the region to unleash their economic and employment potential. Georgia participates in the OECD Anti-Corruption Network for Eastern Europe and Central Asia, which provides a regional forum for promotion of anti-corruption activities, exchange of information on best practices, and donor coordination. Georgia is a member of the Task Force for the Implementation of the Environmental Action Program (EAP Task Force), which aims to address the heavy environmental legacy of the Soviet development model. Additionally, the Support for Improvement in Governance and Management (SIGMA) program, a joint initiative of the EU and the OECD, has assisted Georgia since 2008, to strengthen public governance systems and public administration capacities. Georgia participates in the OECD Committee on Fiscal Affairs’ Base Erosion and Profit Sharing (BEPS) Project.

Georgia’s civil society and workers associations are active in responding to human rights, labor rights, consumer protection, environmental protection, and other concerns, as well as new laws and regulations that intend to protect or have potential adverse effects on citizens.

Georgia is not a party to the Extractive Industries Transparency Initiative and/or Voluntary Principles on Security and Human Rights despite extractive manganese, gold, and copper ore industries operating in Georgia. Among the local tools promoting CSR principles and policies in such industries are commercial chambers, the Public Defender’s office, the Business Ombudsman under the Prime Minister’s Office, sectoral trade unions, and Georgia’s Trade Union Confederation.

Georgia has ratified The Montreux Document on Private Military and Security Companies.

9. Corruption

Georgia has laws, regulations, and penalties to combat corruption.  Georgia criminalizes bribery under the Criminal Code of Georgia. Chapter XXXIX of the Criminal Code, titled as Official Misconduct, among other crime, covers many corruption-related offenses committed by public servants including bribery, abuse of official powers, accepting a prohibited gift, forgery of official documentation, etc.  Senior public officials must file financial disclosure forms, which are publicly available online, and Georgian legislation provides for the civil forfeiture of undocumented assets of public officials who are charged with corruption-related offenses.

Penalties for accepting a bribe start at six years in prison and can extend to 15 years, depending on the circumstances.  Penalties for giving a bribe can include a fine, correctional labor, house arrest, or prison sentence up to three years.  In aggravated circumstances, when a bribe is given to commit an illegal act, the penalty is from four to seven years.  When bribe-giving is committed by the organized group, the sentence is imprisonment for 5 to 8 years. Abuse of authority by public servants are criminal acts under Articles 332 of the criminal code and carry a maximum penalty of eight years imprisonment.  The definition of a public official includes foreign public officials and employees of international organizations and courts.  White collar crimes, such as bribery, fall under the investigative jurisdiction of the Prosecutor’s Office. The laws extend to family members of officials.

Georgia is not a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Georgia has, however, ratified the UN Convention against Corruption. Georgia cooperates with the Group of States against Corruption (GRECO) and the OECD’s Anti-Corruption Network for Transition Economies.

Following its assessment of Georgia in June 2016, the OECD released a report concluding that Georgia had achieved remarkable progress in eliminating petty corruption in public administration and should now focus on combating high-level and complex corruption. The report commends Georgia’s mechanism for monitoring and evaluating the implementation of its Anti-Corruption Strategy and Action Plan, as well as the role given to civil society in this process. It also welcomes the adoption of a new Law on Civil Service and recommends that the remaining legislation to implement civil service reforms is adopted without delay. The report notes that the Civil Service Bureau and Human Resources units in state entities should be strengthened to ensure the implementation of the required reforms. The report highlights Georgia’s good track record in prosecuting corruption crimes and in using modern methods to confiscate criminal proceeds. It recommends that Georgia increase enforcement of corporate liability and the prosecution of foreign bribery to address the perception of corruption among local government officials. The full report is available at: http://www.oecd.org/corruption/anti-bribery/Georgia-Round-4-Monitoring-Report-ENG.pdf .

In April 2021, GRECO released its Second Compliance Report of Fourth Evaluation Round on Georgia, which deals with corruption prevention with regards to members of parliament (MPs), judges, and prosecutors. According to the report, since  2019  Georgia implemented two additional recommendations – totaling seven of 16 recommendations – for preventing corruption among MPs, judges, and prosecutors. The Compliance Report said Georgia satisfactorily implemented measures to enforce objective criteria for the recruitment and promotion of prosecutors, ensured further updates of the “Code of Ethics for Employees of the Prosecution Service of Georgia,” and introduced measures for enforcing the rules. Out of the nine outstanding recommendations, two remain unaddressed while seven have been partly implemented. The sixteen recommendations were adopted in 2016, in the Fourth Round Evaluation Report on Georgia, by the Council of Europe’s anti-corruption monitoring body.

Since 2003, Georgia has significantly improved its ranking in Transparency International’s (TI) Corruption Perceptions Index (CPI) report. TI ranked Georgia 45th out of 180 countries in the 2021 edition  of its CPI.

While Georgia has been successful in fighting visible, low-level corruption, Georgia remains vulnerable to what TI calls “elite” corruption: high-level officials exploiting legal loopholes for personal enrichment, status, or retribution. Although the evidence is mostly anecdotal, this form of corruption, or the perception of its existence, has the potential to erode public and investor confidence in Georgia’s institutions and the investment environment. Corruption remains a potential problem in public procurement processes, public administration practices, and the judicial system due to unclear laws and ethical standards.

10. Political and Security Environment

The United States established diplomatic relations with Georgia in 1992, following Georgia’s independence from the Soviet Union in 1991. Since independence, Georgia has made impressive progress fighting corruption, developing modern state institutions, and enhancing global security. The United States is committed to helping Georgia deepen Euro-Atlantic ties and strengthen its democratic institutions.

In August 2008, tensions in the Georgian region of South Ossetia culminated in a brief war between Russia and Georgia.  Russia invaded and occupied the Georgian territories of Abkhazia and South Ossetia. Russia continues to occupy these regions – nearly 20 percent of Georgia’s territory – and the central government in Tbilisi does not have effective control over these areas.  The United States supports Georgia’s sovereignty and territorial integrity within its internationally recognized borders and does not recognize the Abkhazia and South Ossetia regions of Georgia as independent.  Only Russia, Nauru, Nicaragua, Syria, and Venezuela recognize them as independent states.  Tensions still exist both inside the occupied territories and near the administrative boundary lines (ABLs).  A Russian military build-up along the South Ossetia ABL dramatically escalated tensions in August 2019.  In addition, Russian “border” guards regularly patrol the ABLs and have increasingly detained people trying to cross the ABLs.  Several attacks, criminal incidents, and kidnappings have occurred near the ABLs as well.  While none of the activity has been anti-American in nature, there is a high risk of travelers finding themselves in a wrong place, at the wrong time, situation.  In addition, unexploded ordnance from previous conflicts poses a danger near the South Ossetia ABL. However, other parts of Georgia, including Tbilisi, are not directly affected.

Per Georgian law, it is illegal to undertake any type of economic activity in Abkhazia or South Ossetia if such activities require permits, licenses, or registration in accordance with Georgian legislation. Laws also ban mineral exploration, money transfers, and international transit via Abkhazia or South Ossetia.

While violent street protests are generally uncommon, there have been some recent episodes of politically motivated violence and civil disturbance.  In July 2021 far-right groups violently rioted throughout Tbilisi against a planned Tbilisi Pride parade, destroying the offices of two NGOs and attacking over 50 journalists and individuals thought to be members of the LGBTQI+ community.  In June 2019, when protesters attempted to enter Parliament during an anti-Russian and anti-government protest, some people were injured with some suffering severe eye injuries due to police use of rubber bullets.  Generally, police have fulfilled their duty to maintain order even in cases of unannounced protests.  However, in some instances the police have allowed a permissive environment for far-right violence.

In 2021, Turkish company ENKA cancelled its $800 million Namakhvani hydropower plant (HPP), citing violation of the terms of the contract by the Georgian government and force majeure.  The decision was preceded by months-long protests – including blocking access to the construction area – by local activists claiming the project was launched without sufficient research and thorough consideration of the risks. Following a series of protests, Georgian authorities started renegotiating with ENKA to improve the terms of the contract and involved protestors in these conversations. However, the protesting groups withdrew from the process, finally leading to the Namakhvani HPP cancelation.

11. Labor Policies and Practices

Georgia offers skilled and unskilled labor at attractive costs compared not only to Western European and American standards, but also to Eastern European standards. Skilled labor availability in the engineering field remains underdeveloped. The official unemployment rate was 19 percent by the end of 2021. Georgia’s National Statistics Agency changed its methodology of calculating unemployment in 2020, and subsistence farmers are no longer categorized as employed. The change considerably increased the official unemployment rate. Some investment agreements between the Georgian government and private parties have included mandates for the contracting of local labor for positions below the management or executive level.

Georgia’s Labor Code defines the minimum age for employment (16), standard work hours (40 per week), and annual leave (24 calendar days). The law allows for other wage and hour issues to be agreed between the employer and employee. The law defines the grounds for termination and severance pay for an employee at the time of termination, including the payment term. An employer is obliged to give compensation of not less than one month’s salary to an employee within thirty (30) days. Additionally, an employer is obliged to give the dismissed employee a written description of the grounds for termination within seven days after an employee’s request.

The Labor Code also prescribes rules for paying overtime labor (over 40 hours), which must be paid at an increased hourly rate.

The Labor Code specifies essential terms for labor contracts, including the start date and the duration of labor relations, working hours and holiday time, location of workplace, position and type of work, amount of salary and its payment, overtime work and its payment, the duration of paid and unpaid vacation and leave, and rules for granting leave. The code states that the duration of a business day for an underage person (ages 16 to 18) should not exceed 36 hours per week. Regulations prohibit interference in union activities and discrimination of an employee due to union membership. The Labor Code amendments mandate the government to reestablish a labor inspectorate to ensure adherence to labor safety standards. In 2018, Parliament passed the Occupational Safety, and Health Law, giving the government power to make unannounced inspections, in some circumstances, at companies operating among “hard, harmful, hazardous, and increased danger” occupations. Subsequent amendments that passed in September 2020 and came into force January 1, 2021, allowed unannounced inspections across all sectors of the economy.

Employees are entitled to up to 183 days (six months) of paid maternity leave, which can last up to 24 months when combined with unpaid leave. The state subsidizes leave taken for pregnancy, childbirth, childcare, and adoption of a newborn. An employer and employee may agree on additional compensation. The Labor Code permits non-competition clauses in contracts; this provision may remain in force even after the termination of employment.

The government adopted a new law in 2018 establishing an accumulative pension scheme, which came into effect as of January 1, 2019. The pension is mandatory for legally employed persons under 40, while for the self-employed and those above the age of 40 enrollment in the program is voluntary. Each employee, employer, and the government must each contribute two percent of the employee’s gross income to an individual retirement account. As for the self-employed, they will make a deposit of four percent of their income, and the state will match another two per cent. Employees pay a flat 20 percent income tax. The state social security system provides a modest pension and maternity benefits. The minimum monthly pension is GEL 250 ($80). The average monthly salary across the economy by the end of 2021 was GEL 1,464 (around $470).

The law generally provides for the right of most workers, including government employees, to form and join independent unions, to legally strike, and to bargain collectively. Employers are not obliged, however, to engage in collective bargaining, even if a trade union or a group of employees wishes to do so. While strikes are not limited in length, the law limits lockouts to 90 days. A court may determine the legality of a strike, and violators of strike rules can face up to two years in prison. Although the law prohibits employers from discriminating against union members or union-organizing activities in general terms, it does not explicitly require reinstatement of workers dismissed for union activity. Certain categories of workers related to “human life and health,” as defined by the government, were not allowed to strike. The International Labor Organization noted the government’s list of such services included some it did not believe constituted essential services directly related to human life and health. Workers generally exercised their right to strike in accordance with the law.

Georgia has ratified some ILO conventions, including the Forced Labor Convention of 1930, the Paid Holiday Convention of 1936, the Anti-Discrimination (Employment and Occupation) Convention of 1951, the Human Resources Development Convention of 1975, the Right to Organize and Collective Bargaining Convention of 1949, the Equal Remuneration Convention of 1951, the Abolition of Forced Labor Convention of 1957, the Employment Policy Convention of 1964, and the Minimum Age Convention of 1973.

Information on labor related issues is also available in the State Department’s annual reports: Human Right Report: http://georgia.usembassy.gov/officialreports/hrr.html. Child Labor Report: http://www.dol.gov/ilab/reports/child-labor/georgia.htm .

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