New draft law: Government delays land registration for foreign investors

20 February, 2014

In June 2013, the Parliament passed a temporary legal ban restricting non-Georgian citizens (including Georgian entities with a foreign minority shareholders – “foreigners”) from purchasing or inheriting agricultural land until December 2014— this ban has now been amended.

TI Georgia challenged this ban in September 2013 for being vaguely worded, discriminatory, unconstitutional – and likely to have a negative effect on the development of the agricultural sector. TI Georgia’s case, Mathias Huter v Parliament of Georgia, was heard by the Constitutional Court in January 2014 and a judgment is currently awaited.

This temporary ban was justified by the government as necessary to give themselves time, “to develop a uniform state policy on agricultural land ownership and organize an integrated land cadastre by December 2013”, as stipulated in the then law. The government has missed this deadline and is now seeking to extend this deadline to 30th November 2014 in the new draft law.

Amendments to the Temporary Ban

The Ministry of Economy’s proposed new legal amendments to the ban will:

  • establish a government-appointed committee that will judge foreigners’ applications to purchase agricultural land. The criteria by which applications will be judged is not yet decided and will be elaborated by the government in the next few months.

  • exempt commercial banks from the ban, (which had prevented banks from taking agricultural land as collateral for a loan) but not microfinance institutions.

The decisive second hearing, held on 19 February, approved the draft in just 2 minutes. During the discussion stages no stakeholders were involved in the drafting of this proposal. Today it passed the third hearing and will become law.

In theory, TI Georgia views a proposed committee that will review applications on a case-by-case basis as potentially less restrictive than an outright ban on foreign shareholders. However, its role could be highly problematic – as we outline below – and the government has not made clear why there is a need for this mechanism. What is urgently needed is a state policy on agricultural land ownership and a comprehensive land registration program, which the government had promised to deliver by December 2013.

Composition of the future committee and the regulations by which it judges applications for purchase by foreigners

If this proposed mechanism must exist, then in order for it to function properly, TI Georgia recommends that:

  1. Clear, relevant, minimal and publicly available criteria should be established, by which applications for the purchase of agricultural land by foreigners will be judged, in order to limit the committee's discretionary powers;

  2. Before finalising these criteria the committee should liaise with relevant stakeholders including established foreign landowners, business associations and local communities;

  3. Confidential information contained in business plans must be kept confidential;

  4. Committee members should have appropriate expertise;

  5. Consider including minimal thresholds: Estonia was permitted by the European Union to restrict the acquisition of agricultural land and forests by foreigners (for 7 years after accession), but does not restrict purchases of less than 10 hectares.

  6. Applicants should be allowed to appeal to a Georgian civil court in order to prevent unfair or arbitrary decision making;

  7. Granted applications and the reasons for approval should be published, to ensure that there is no possibility of bribery or corruption being used to gain approval for an application;

  8. The government should exempt microfinance associations from the ban (as commercial banks are); access to credit is already a significant constraint to the agricultural sector.

Land registration and policy: the government’s lack of progress to date

The government formed an Intergovernmental Coordination Council for the Improvement of Land Governance in Georgia (chaired by the Ministry of Justice and composed of: the Chairmen of the Parliamentary Committees on: Economic Policy and Agrarian Issues; and the Ministries of: Economy, Agriculture, Infrastructure, Environment, Finance and Energy; as well as the Speaker of Parliament) to develop a state policy on agricultural land ownership and a comprehensive land registration program.

So far, the following development has happened: along with the World Bank, NAPR intends to implement two projects to survey and register 63-68,000 hectares in 11 villages over 30 months, starting in July 2014.

One project will be implemented by the World Bank and NAPR (subject to final approval by the World Bank in April 2014), will register 48,000 hectares of agricultural land. A second project, led by NAPR (funded by the 2014 Georgian National Budget), will register 15-20,000 hectares of non-agricultural land (all non-agricultural lands located alongside the World Bank project’s agricultural lands).

NAPR’s own project was meant to begin in January 2014 and both projects were meant to last just 12 months (not 30 months as now discussed). The size of NAPR’s project is very modest, moreover the Intergovernmental Coordination Council and NAPR have not even committed to a date to begin this project.   

According to NAPR’s own statistics (confirmed by the Ministry of Agriculture), 75 to 80% of all agricultural land plots are unregistered. NAPR’s project will increase non-agricultural land registrations up from 48% to 48.85 - 49.13%.The World Bank’s project will increase agricultural land registrations up from 20-25% to 23.3-28.8%.

In September 2013, the Ministry of Agriculture presented a Ministerial Strategy to the Inter-Governmental Coordination Council that proposed a 3-year National Program to survey, demarcate and register all unregistered agricultural lands. The Ministerial Strategy was co-authored by MoA advisors Lasha Dolidze (employed by the UN Food & Agriculture Agency) and Vincent Morabito (USAID, who implemented a similar project in Moldova).

The Intergovernmental Coordination Council has still not formally approved the Ministerial Strategy.

TI Georgia agrees with the Ministerial Strategy that effective land registration is the prerequisite for agricultural development in Georgia. But the government is delaying the implementation of a national registration program.

The development of an agricultural land market has been severely restricted because 75-80% of agricultural lands are not properly registered. As a result, owners do not have secure title and buyers cannot accurately identify the land they are purchasing. This has led to confrontations between investors and local populations, impeded land sales, consolidation (agricultural land parcels have an average size of 0.3-1.25 hectares), access to finance, state privatisation (460,000 hectares of agricultural lands earmarked for privatisation are still owned by the state), and the formulation of a state land-use and taxation policy.  

Recommendation

TI Georgia believes that it is essential that the government urgently embarks on its two election promises:

  • to develop a state policy on agricultural land ownership and,

  • organize a comprehensive land registration program.

These must protect the rights of existing landowners, facilitate investment in Georgia and promote the sustainable development of the agricultural sector.  

To read more about the proposed commission, the activities of foreign farmers and the effect of the agricultural ban see: Ban on land sales – stories from large foreign farmers 

Author: Eva Anderson