Wildly gyrating, often plunging markets have a lot of investors nervous about staying invested in the market. At the same time. the shaky public finances of developed markets make bonds scary, and the return on cash is nil or even negative. So it was only a matter of time before someone approached me for advice on a seemingly low-risk but high-return investment.
The investment opportunity too good to pass up was a simple, safe term deposit at a bank in Georgia – offering a dazzling 8% rate for one year or 9% for two years. Only it's not SunTrust Bank in Atlanta that is making the pitch, but TBC Bank in Tibilisi.
While that's not the Georgia that Ray Charles had in mind, the Caucasus-area European nation should not be easily dismissed. At a time when Western nations seem to be in the grip of decline brought on in part by an unwillingness to accept short-term pain for long-term gain, Georgia is one of the world's true and few success stories.
After the fall of the Soviet Union 20 years ago, Georgia undertook major structural reforms to set its economy on a competitive free-market course. Though the U.S. may be lucky if it ekes out 2% growth this year, Georgia has experienced torrid growth in the past decade, reaching a 12% annual growth rate in 2007, and it was dubbed "the number one economic reformer in the world" by the World Bank – based on its "ease of doing business rank" moving up from 112 to 18; that rank has since moved up to 12, just ahead of Finland (the U.S. ranks 5).
A politically and economically progressive country like Georgia must also have a stable banking sector, and the bank that is offering this CD product appears to have the backing of pillars of the international financial community, including the International Finance Corporation – an arm of the World Bank – as well as the European Bank for Reconstruction and Development and others. The bank has a nice franchise within Georgia and annual audits available online from PricewaterhouseCoopers.
In order to do that profitably, the bank would have to be making double-digit returns on their deposits in an environment today that most professional investors consider to be challenging in the extreme, to say the least. So, sure, the cost of a mortgage in Tbilisi is higher than in the U.S. – the TBC site says rates start at 12% – but even if Georgia is doing all the right things economically it can still go under because the rest of the world is falling apart.
In other words, the Republic of Georgia is not in as friendly an environment as the State of Georgia, closer to home. Russia invaded a few years ago and could do so again; there are presently two Russian-backed separatist enclaves in its midst.
A civil war or foreign invasion, neither of which is improbable, could easily put an end to the impressive economic growth Georgia has cultivated through its hard work and sacrifice.
