Georgia: The World's Coworking Hub

Georgia: The World's Coworking Hub

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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 – together with the dirty bath water. Especially so, if this baby is sacrificed on the altar of racist sentiments harbored by certain groups within the 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 U.S 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 7 different countries and attended 4 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.

Bastian strikes me as a very cosmopolitan, freedom-loving German.

Ever since his first trip abroad (for an internship in Beijing in August 2006), he’s never stopped traveling, hopping from continent to continent and fearlessly immersing himself into different cultural and linguistic environments, ranging from the UK and US, to Germany and Denmark, to Oman, China and the Philippines.

Copenhagen is a great place to live and study, he tells me, because Denmark is so unlike Germany. People are on a first-name basis with each other and social hierarchies are not all that rigid. For example, professors don’t have long titles in front of their names (“Herr Prof. Dr.-Ing.”).

Incidentally, the essay Bastian wrote in order get admitted to CBS argued that people should not be judged by their titles and the number of years they spend in formal education; far more important is our ability to learn – formally or informally – and the real life experience we bring to our jobs.

What brought you to Georgia? – I ask Bastian.

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.

Georgia The Worlds Coworking Hub Map

The Mercer 2018 Cost of Living Index ranks Tbilisi, Georgia among the “bottom 10 cities” which are supposed to be “developing, unsafe, and war-torn”. In reality, Tbilisi is not war-torn or unsafe. Rather, it is an affordable heaven for freelancers and startup developers from all over the world.

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.

        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 USD)

 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

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.

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 in 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.

 

Georgia visas and residence permits

Georgia currently has a visa-free travel regime with 93 countries by which citizens of those countries have the ability to enter and stay in Georgia without a visa, for one full year. Citizens of countries that do not have a visa-free travel regime with Georgia must obtain a visa in order to enter the country. Georgia grants single- and multiple-entry visas for short and long terms. There are five categories of visa granted to foreigners based on the nature of their travel to Georgia. For example, freelancers, foreigners coming to Georgia as interns and volunteers, and press workers require a D2 category immigration visa, while persons coming to Georgia in order to carry out entrepreneurial activity require a D1 category immigration visa. Foreigners can also acquire a residence permit in order to enter, stay in, and transit Georgia for the validity of the permit. Holders of the residence permit are also authorized to invite foreigners to Georgia, for the purpose of issuing a Georgian visa. Georgia issues 10 different types of residence permits. The proposed changes to the law would affect work, investment, permanent and short-term residence permits. Of these, the permanent residence permit is issued indefinitely, while the remaining three give the right of temporary residence for up to six years.

 

The above changes are being justified as a measure designed to protect Georgian interests. Tbilisi mayor Kakha Kaladze 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, if amended, the law will increase the property value requirements needed to obtain the short-term residency permit (from USD 35,000 to USD 100,000 worth of property). In addition, holders of short-term residence permits, who sell their property, will automatically lose their permits. 

It is unclear to what extend these legal changes are meant to address a real problem and to what extent they represent a pre-election ploy. The good news is that anti-migrant sentiments are not particularly strong among Georgian citizens. According to the 2017 Caucasus Barometer Survey, less than 1% of respondents identified migration as the most important or second most important issue facing the country. In addition, only 16% of respondents said that their attitude to foreigners is “Bad” or “Very bad”. It seems rather that migrants from certain countries are deemed undesirable and that Georgian parliamentarians are trying to play on these sentiments. According to the same Caucasus Barometer Survey, 38% and 37% of respondents said they would disapprove of doing business with an Iranian and an Arab, respectively. In contrast, only 21% said they would disapprove of doing business with an American. The current government’s pre-election maneuvering is helped by the fact that migrants are an economically marginal group in Georgia. According to the 2017 Migration Profile of Georgia, the total tax revenue of organizations with at least one foreign founder was in excess of GEL 53,191,000 in 2016, a mere 0.5% of total tax revenues. 

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 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 – together with the dirty bath water.

*     *     *

This week’s traditional Tbilinomics Tamada toast is to Georgia’s centuries-old tradition of tolerance and the somewhat less traditional virtue – patience.


 

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