Economy of Georgia
Encyclopedia
Despite the severe damage the economy of Georgia
suffered due to civil strife in the 1990s, Georgia
, with the help of the IMF and World Bank
, has made substantial economic gains since 2000, achieving robust GDP growth and curtailing inflation.
GDP growth, spurred by gains in the industrial and service sectors, remained in the 9–12% range in 2005–07. In 2006 and in 2008, the World Bank named Georgia the top reformer in the world.
International money transfers from Georgian migrant workers, working mostly in Russia
, accounted for approximately 7% of the Georgian GDP in 2007. In 2010, money transfers surpassed the FDI
as a source of hard currency influx into the economy.
, cultivation of citrus fruits, tea
and grape
s; mining of manganese
and copper
; and output of a big industrial sector producing wine
, metals, machinery, chemicals, and textiles.
Like many post-Soviet countries, Georgia went through a period of sharp economic decline during 1990s, with high inflation and large budget deficits, due to persistent tax evasion
. In 1996 Georgia's budget deficit rose to as much as 6.2%. During that period international financial institutions played a critical role in Georgia's budgetary calculations. Multilateral and bilateral grants and loans totaled 116.4 million lari in 1997 and totaled 182.8 million lari in 1998.
Economic recovery had been hampered by the separatist disputes in Abkhazia
and South Ossetia
, resistance to reform on the part of some corrupt and reactionary factions, and Asian financial crisis. Under President Shevardnadze's leadership, the government had nonetheless made some progress on basic market reforms: all prices and most trade have been liberalized, a stable national currency (the lari) was introduced, and massive government downsizing took place.
During late 1990s more than 10,500 small enterprises had been privatized, and although privatization of medium- and large-sized firms had been slow, more than 1,200 medium - and large-sized companies had been set up as joint stock companies. A law and a decree establishing the legal basis and procedures for state property privatization reduced the number of companies controlled by the state.
The United States
began assisting Georgia in reform process soon after the country gained independence from Soviet Union
. Gradually, the focus shifted from humanitarian to technical and institution-building programs. Provision of legal and technical advisors was complemented by training opportunities for parliamentarians, law enforcement officials, and economic advisers.
This rapid growth in output was accompanied by rising inflation
- 11% in 2007, up from 7% in 2003.
In 2009, IMF estimated current account
balance of Georgia was -2.612 BN USD. Georgia has one of the highest deficits among the European and Transcaucasian Post-Soviet states
:
Deficits in current account have been more than offset by strong foreign capital inflows, allowing the Georgian currency to appreciate.
Recent indications suggest the economy has been severely affected by the war with Russia in August 2008. Third quarter GDP was down by 3.9% compared with the same period of the last year. This marked a sharp reversal of the situation as it was in the first half of the year, when the economy grew by 8.7%. FDI inflows fell to only $150 million in the Q3 2008, compared with $430 million in Q1 and $525 in Q2. This had put Georgian currency under extra pressure. Nevertheless, the government has managed to preserve financial stability thanks to the considerable aid provided by the US and international institutions. EBRD analysts believe that substantial international financial support and remittances from workers living abroad will cover the current account deficit in the medium term.
(FDI) have been a driving factor behind a rapid economic growth in Georgia since 2003. In 2007 alone the economy of Georgia
attracted $1,7 billion in FDI
, bringing the total FDI stock to $5,2 billion, which is over 50% of the GDP
The table below shows FDI stock
as a percentage of GDP in selected FSU countries. For statistical purposes, FDI is defined as a foreign company owning 10% or more of the ordinary shares of an incorporated
firm or its equivalent for an unincorporated firm.
The major recipients of FDI in Georgia are the telecommunication
s industry, transportation sector, production and distribution of electricity, and construction
.
Foreign direct investment fell significantly during the global economic downturn of late 2000s, to $814.5M in 2010, compared to $2 014.8M in 2007.
.
As of August 2010, most of remittances come from Russia
, according to the National Bank of Georgia
: monthly remittances for Georgian migrant workers from Russia accounted for $61,5M (60.1%), followed by migrants working in Greece
, $7,5M (7.3%).
Overall, in 2010 international money transfers from migrant workers to Georgia amounted to $939,7M, surpassing the FDI
of $814.5M.
Things have changed after new Law on Issuance of Licenses and Permits was introduced in 2005. The law cut from 909 to 159 the number of activities subject to licensing. A one-stop shop was created for license applications, so that now businesses can submit all documents there, with no verification by other agencies required. In the construction industry Georgia eliminated many of the approvals required to obtain a construction permit (while maintaining procedures necessary for regulating in the public interest) and introduced a “silence is consent” rule, whereby a permit or license is automatically granted if no government action is taken within statutory time limits. The number of procedures needed to build a warehouse dropped to 12. The time required fell by nearly 3 months. The approval process for building a warehouse in Georgia is now more efficient than in all EU countries except Denmark.
Georgia has seen a drastic fall in perceived corruption of tax officials. In 2005 only 11% of businesses, surveyed by the World Bank, reported that bribery was frequent, down from 44% in 2002.
, Georgia undertook a far-reaching reform of labour regulation. The new Labour Code was adopted on 25 May 2006. The new law eases restrictions on the duration of term contracts and the number of overtime hours and discards the premium required for overtime work. It also eliminates the requirement to notify and get permission from the labour union to fire a redundant worker. The new law provides for 1 month’s severance pay, replacing complex rules under which required notice periods depended on seniority and the manager had to write long explanations to labor unions and the Ministry of Labor. In general, new regulation makes Georgian labor market much more flexible.
Coupled with the fact that Georgia also reduced the social security contributions paid on wages by businesses from 31% to 20% in 2005, and abolished them entirely starting January 2008, these changes make Georgia the sixth easiest place to employ workers globally.
More flexible labour regulations boost job creation. But they don’t mean giving up protections. Georgia has ratified all the core labour standards of the International Labour Organization
. Flexible labour regulations that give workers the opportunity for a job in the formal sector and easy transitions from one job to another.
unemployment rate stood at 13,6% in 2006. This is by far the highest level among the FSU countries. However, even this figure is misleading and doesn't reflect the vast discrepancies between urban and rural areas of the country.
Nearly a half of Georgia's population lives in rural areas, where low-intensity self-sufficient
farming provides the principal source of livelihood. Georgian statistics service puts individual peasants into the category of self-employed workers. As of 2007 416,900 peasants were listed as self-employed in agriculture. For large families, heads of households are typically described as "individual entrepreneurs", members of the family that help to cultivate land are classified as "unpaid family business workers". The use of this methodology produces relatively low unemployment rates for rural areas (4,8% as 2006 ).
By contrast, the average unemployment rate in cities is 26%. In Tbilisi
unemployment is reported to be reaching 40% Apart from the obvious social strain that widespread unemployment creates, the issue has strong political implications. Some observers have argued that desperation about poor living conditions fuelled the discontent that eventually erupted into violent anti-government protests
in November, 2007.
In recent years Georgia has fully deregulated its electricity sector, and now there is free and open access to the market. However, state-owned actors still play an important role, most notably in generating
.
In 2007, Georgia generated 8.34 billion kilowatthours (Bkwh) of electricity while consuming 8.15 Bkwh. Most of Georgia's electricity generation comes from hydroelectric
facilities. In 2005, the country generated 6,17 Bkwh of hydropower, or 86% of total electricity generation. In 2006 rapid growth in hydroelectricity output (by 27%) was matched by equally strong growth in thermal electricity (by 28%). Since then the share of hydropower has grown even bigger, when Inguri
power plant reached full capacity in November 2007. In addition to state-owned Inguri, which has an installed capacity of 1,300 megawatts, Georgia's hydroelectric infrastructure consists of many small private plants.
In recent years, Georgia became a major exporter of electricity in the region, exporting 1.3 billion KW·h in 2010. Hydropower stations of Georgia produce 80-85% of the electricity utilized within the country, the remaining 15-20% is produced by thermal power stations
. According to Ministry of Energy
, so far Georgia has been exploiting only 18% of its hydro resource potential.
Georgia's reliance on hydropower leaves the country vulnerable to climatic fluctuations, which requires imports to meet seasonal shortages, but also opens the possibility of exports during wetter conditions. Georgia still has the potential to increase hydro-generated power, through refurbishing existing facilities, as well as constructing new hydropower plants.
Before 2004 Georgia's transmission network was in critical condition, with electricity blackouts being common throughout the country. Since late 2005, distribution has been much more reliable, approaching consistent 24-hour-a-day services. Investments in infrastructure have been made as well.
Currently, a privately-owned Energo-Pro Georgia controls 62.5% of the electricity distribution market.
Georgia has transmission lines that connect its power grid to Russia
, Turkey
, Armenia
and Azerbaijan
. In July 2008 Georgia began exporting electricity to Russia through the Kavkasioni power line.
Georgian Natural gas
consumption stood at 1.8 billion cubic meters in 2007. Natural gas used to be supplied to Georgia by Russia
. In recent years, however, Georgia has been able to eliminate its dependency on imports from Russia, thanks to increased hydroelectricity production, and the availability of natural gas sources from Azerbaijan
.
In addition, all Russian gas exports to Armenia pass through the Georgian pipeline system. Georgia takes 10% of that gas as a transit fee.
Georgia is a partner country of the EU INOGATE
energy programme, which has four key topics: enhancing energy security
,
convergence of member state energy market
s on the basis of EU internal energy market principles,
supporting sustainable energy
development, and attracting investment
for energy projects of common and regional interest.
.
Georgian agricultural production is beginning to recover following the devastation caused by the civil unrest and the necessary restructuring following the breakup of the Soviet Union. Livestock production is beginning to rebound, although it continues to be confronted by minor and sporadic disease outbreaks. Domestic grain production is increasing, and will require sustained political and infrastructure improvements to ensure appropriate distribution and revenues to farmers. Tea, hazelnut and citrus production have suffered greatly as a result of the conflict in Abkhazia, a crucial area for planting the latter crops.
While approximately 13.1% of the Georgian GDP is generated by the agrarian sector, crops often spoil in the field because farmers can't sell their goods because of high transportation cost, which make domestic goods more expensive than imported goods. In collaboration with European assistance, Georgia has taken steps to control the quality of natural spring water and how to appropriately sell it.
Viticulture
and winemaking are the most important fields of Georgia’s agriculture. Over 450 species of local vine are bred in Georgia, and the country is considered as one of the oldest places of producing top-quality wines in the world. Russia was traditionally the biggest export market for Georgian wine
. This, however, changed in 2006, when Russia banned imports of wine and mineral water from Georgia. Since then Georgian wine producers have struggled to maintain output and break into new markets.
In 2007 Georgia sold 11 million bottles of wine in about 40 countries, less than it sold in Russia alone before the ban was imposed. Total wine sales abroad in 2007 were down by about nine million bottles, forcing many vineyards to sell land, buildings and equipment to survive.
Georgia (country)
Georgia is a sovereign state in the Caucasus region of Eurasia. Located at the crossroads of Western Asia and Eastern Europe, it is bounded to the west by the Black Sea, to the north by Russia, to the southwest by Turkey, to the south by Armenia, and to the southeast by Azerbaijan. The capital of...
suffered due to civil strife in the 1990s, Georgia
Georgia (country)
Georgia is a sovereign state in the Caucasus region of Eurasia. Located at the crossroads of Western Asia and Eastern Europe, it is bounded to the west by the Black Sea, to the north by Russia, to the southwest by Turkey, to the south by Armenia, and to the southeast by Azerbaijan. The capital of...
, with the help of the IMF and World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
, has made substantial economic gains since 2000, achieving robust GDP growth and curtailing inflation.
GDP growth, spurred by gains in the industrial and service sectors, remained in the 9–12% range in 2005–07. In 2006 and in 2008, the World Bank named Georgia the top reformer in the world.
International money transfers from Georgian migrant workers, working mostly in Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
, accounted for approximately 7% of the Georgian GDP in 2007. In 2010, money transfers surpassed the FDI
Foreign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
as a source of hard currency influx into the economy.
History
Georgia's economy has traditionally revolved around Black Sea tourismTourism
Tourism is travel for recreational, leisure or business purposes. The World Tourism Organization defines tourists as people "traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes".Tourism has become a...
, cultivation of citrus fruits, tea
Tea
Tea is an aromatic beverage prepared by adding cured leaves of the Camellia sinensis plant to hot water. The term also refers to the plant itself. After water, tea is the most widely consumed beverage in the world...
and grape
Grape
A grape is a non-climacteric fruit, specifically a berry, that grows on the perennial and deciduous woody vines of the genus Vitis. Grapes can be eaten raw or they can be used for making jam, juice, jelly, vinegar, wine, grape seed extracts, raisins, molasses and grape seed oil. Grapes are also...
s; mining of manganese
Manganese
Manganese is a chemical element, designated by the symbol Mn. It has the atomic number 25. It is found as a free element in nature , and in many minerals...
and copper
Copper
Copper is a chemical element with the symbol Cu and atomic number 29. It is a ductile metal with very high thermal and electrical conductivity. Pure copper is soft and malleable; an exposed surface has a reddish-orange tarnish...
; and output of a big industrial sector producing wine
Georgian wine
Georgia is one of the oldest wine producing regions of the world. The fertile valleys of the South Caucasus, which Georgia straddles, are believed by many archaeologists to be the source of the world's first cultivated grapevines and neolithic wine production, over 8,000 years ago...
, metals, machinery, chemicals, and textiles.
Like many post-Soviet countries, Georgia went through a period of sharp economic decline during 1990s, with high inflation and large budget deficits, due to persistent tax evasion
Tax evasion
Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability,...
. In 1996 Georgia's budget deficit rose to as much as 6.2%. During that period international financial institutions played a critical role in Georgia's budgetary calculations. Multilateral and bilateral grants and loans totaled 116.4 million lari in 1997 and totaled 182.8 million lari in 1998.
Economic recovery had been hampered by the separatist disputes in Abkhazia
Abkhazia
Abkhazia is a disputed political entity on the eastern coast of the Black Sea and the south-western flank of the Caucasus.Abkhazia considers itself an independent state, called the Republic of Abkhazia or Apsny...
and South Ossetia
South Ossetia
South Ossetia or Tskhinvali Region is a disputed region and partly recognized state in the South Caucasus, located in the territory of the South Ossetian Autonomous Oblast within the former Georgian Soviet Socialist Republic....
, resistance to reform on the part of some corrupt and reactionary factions, and Asian financial crisis. Under President Shevardnadze's leadership, the government had nonetheless made some progress on basic market reforms: all prices and most trade have been liberalized, a stable national currency (the lari) was introduced, and massive government downsizing took place.
During late 1990s more than 10,500 small enterprises had been privatized, and although privatization of medium- and large-sized firms had been slow, more than 1,200 medium - and large-sized companies had been set up as joint stock companies. A law and a decree establishing the legal basis and procedures for state property privatization reduced the number of companies controlled by the state.
The United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
began assisting Georgia in reform process soon after the country gained independence from Soviet Union
Soviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
. Gradually, the focus shifted from humanitarian to technical and institution-building programs. Provision of legal and technical advisors was complemented by training opportunities for parliamentarians, law enforcement officials, and economic advisers.
Recent macroeconomic performance
Over the last few years Georgian economy has been one of the fast in the FSU. Annual GDP growth exceeded 9% in every year since 2005. In 2007 the economy expanded at the rate of 12.4%.This rapid growth in output was accompanied by rising inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
- 11% in 2007, up from 7% in 2003.
In 2009, IMF estimated current account
Current account
In economics, the current account is one of the two primary components of the balance of payments, the other being the capital account. The current account is the sum of the balance of trade , net factor income and net transfer payments .The current account balance is one of two major...
balance of Georgia was -2.612 BN USD. Georgia has one of the highest deficits among the European and Transcaucasian Post-Soviet states
Post-Soviet states
The post-Soviet states, also commonly known as the Former Soviet Union or former Soviet republics, are the 15 independent states that split off from the Union of Soviet Socialist Republics in its dissolution in December 1991...
:
| Rank | Country | Current account balance as a percentage of GDP (2007) | 2009 IMF estimates |
|---|---|---|---|
| 1 |  Azerbaijan |
28.869 | 38.608 |
| 2 |  Russia |
5.906 | 3.372 |
| 3 |  Ukraine |
-3.722 | -9.218 |
| 4 |  Armenia |
-6.400 | -10.800 |
| 5 |  Belarus |
-6.834 | -8.026 |
| 6 |  Lithuania |
||
| -8.675 | |||
| 7 |  Moldova |
-16.995 | -19.139 |
| 8 |  Estonia |
-18.065 | -8.731 |
| 9 |  Georgia (country) |
-20.000 | -18.700 |
| 10 |  Latvia |
-22.938 | -8.320 |
Deficits in current account have been more than offset by strong foreign capital inflows, allowing the Georgian currency to appreciate.
Recent indications suggest the economy has been severely affected by the war with Russia in August 2008. Third quarter GDP was down by 3.9% compared with the same period of the last year. This marked a sharp reversal of the situation as it was in the first half of the year, when the economy grew by 8.7%. FDI inflows fell to only $150 million in the Q3 2008, compared with $430 million in Q1 and $525 in Q2. This had put Georgian currency under extra pressure. Nevertheless, the government has managed to preserve financial stability thanks to the considerable aid provided by the US and international institutions. EBRD analysts believe that substantial international financial support and remittances from workers living abroad will cover the current account deficit in the medium term.
Foreign direct investment in Georgia
Large inflows of Foreign direct investmentForeign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
(FDI) have been a driving factor behind a rapid economic growth in Georgia since 2003. In 2007 alone the economy of Georgia
Georgia (country)
Georgia is a sovereign state in the Caucasus region of Eurasia. Located at the crossroads of Western Asia and Eastern Europe, it is bounded to the west by the Black Sea, to the north by Russia, to the southwest by Turkey, to the south by Armenia, and to the southeast by Azerbaijan. The capital of...
attracted $1,7 billion in FDI
Foreign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
, bringing the total FDI stock to $5,2 billion, which is over 50% of the GDP
The table below shows FDI stock
FDI stock
FDI stock is the value of the share of capital and reserves attributable to the parent enterprise, plus the net indebtedness of affiliates to the parent enterprise....
as a percentage of GDP in selected FSU countries. For statistical purposes, FDI is defined as a foreign company owning 10% or more of the ordinary shares of an incorporated
Incorporation (business)
Incorporation is the forming of a new corporation . The corporation may be a business, a non-profit organisation, sports club, or a government of a new city or town...
firm or its equivalent for an unincorporated firm.
| Rank | Country | FDI stock as a percentage of GDP (2007) |
|---|---|---|
| 1 | Estonia |
78,0 |
| 2 | Georgia (country) |
51,1 |
| 3 |  Kazakhstan |
41,9 |
| 4 | Ukraine |
27,0 |
| 5 | Armenia |
26,6 |
| 6 | Russia |
25,1 |
| 7 | Belarus |
10,0 |
The major recipients of FDI in Georgia are the telecommunication
Telecommunication
Telecommunication is the transmission of information over significant distances to communicate. In earlier times, telecommunications involved the use of visual signals, such as beacons, smoke signals, semaphore telegraphs, signal flags, and optical heliographs, or audio messages via coded...
s industry, transportation sector, production and distribution of electricity, and construction
Construction
In the fields of architecture and civil engineering, construction is a process that consists of the building or assembling of infrastructure. Far from being a single activity, large scale construction is a feat of human multitasking...
.
Foreign direct investment fell significantly during the global economic downturn of late 2000s, to $814.5M in 2010, compared to $2 014.8M in 2007.
International money transfers
International money transfers accounted for approximately 7% of GDP of Georgia in 2007, with roughly 20-30% of the Georgian labour force working abroadMigrant worker
The term migrant worker has different official meanings and connotations in different parts of the world. The United Nations' definition is broad, including any people working outside of their home country...
.
As of August 2010, most of remittances come from Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
, according to the National Bank of Georgia
National Bank of Georgia (country)
The National Bank of Georgia is the central bank of Georgia. Its status is defined by the Constitution of Georgia.Georgia's first central bank was established in 1919. In its current form the National Bank of Georgia has existed since 1991...
: monthly remittances for Georgian migrant workers from Russia accounted for $61,5M (60.1%), followed by migrants working in Greece
Greece
Greece , officially the Hellenic Republic , and historically Hellas or the Republic of Greece in English, is a country in southeastern Europe....
, $7,5M (7.3%).
Overall, in 2010 international money transfers from migrant workers to Georgia amounted to $939,7M, surpassing the FDI
Foreign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
of $814.5M.
Institutional reforms
Under the Saakashvili administration, Georgia undertook a number of profound institutional reforms aimed at modernizing the economy and improving business climate.Licensing regulation
Just 3 years ago getting a construction permit for a commercial warehouse in Tbilisi required 29 different procedures. Before even applying for the permit a builder needed permission from agencies as diverse as the Center of Archaeology at the Academy of Science and the Inspector of Sanitary Observation. Illegal construction activity was widespread. In 2004 less than 45% of ongoing construction projects in Tbilisi had permits.Things have changed after new Law on Issuance of Licenses and Permits was introduced in 2005. The law cut from 909 to 159 the number of activities subject to licensing. A one-stop shop was created for license applications, so that now businesses can submit all documents there, with no verification by other agencies required. In the construction industry Georgia eliminated many of the approvals required to obtain a construction permit (while maintaining procedures necessary for regulating in the public interest) and introduced a “silence is consent” rule, whereby a permit or license is automatically granted if no government action is taken within statutory time limits. The number of procedures needed to build a warehouse dropped to 12. The time required fell by nearly 3 months. The approval process for building a warehouse in Georgia is now more efficient than in all EU countries except Denmark.
Tax collection
In 2005, Georgia enacted a new Tax Code that introduced lower, flat tax rates. The total number of taxes was reduced from 22 to only 7. The number of taxes was further reduced starting January 1, 2008, when new changes to the Tax Code of Georgia took effect that abolished the 20% social tax paid by businesses. The rate of personal income tax was rased instead, from 12% to a flat 25% rate.Georgia has seen a drastic fall in perceived corruption of tax officials. In 2005 only 11% of businesses, surveyed by the World Bank, reported that bribery was frequent, down from 44% in 2002.
Labour regulation
With unemployment around 15% and many jobs in the informal sectorInformal economy
The informal sector or informal economy as defined by governments, scholars, banks, etc. is the part of an economy that is not taxed, monitored by any form of government, or included in any gross national product , unlike the formal economy....
, Georgia undertook a far-reaching reform of labour regulation. The new Labour Code was adopted on 25 May 2006. The new law eases restrictions on the duration of term contracts and the number of overtime hours and discards the premium required for overtime work. It also eliminates the requirement to notify and get permission from the labour union to fire a redundant worker. The new law provides for 1 month’s severance pay, replacing complex rules under which required notice periods depended on seniority and the manager had to write long explanations to labor unions and the Ministry of Labor. In general, new regulation makes Georgian labor market much more flexible.
Coupled with the fact that Georgia also reduced the social security contributions paid on wages by businesses from 31% to 20% in 2005, and abolished them entirely starting January 2008, these changes make Georgia the sixth easiest place to employ workers globally.
More flexible labour regulations boost job creation. But they don’t mean giving up protections. Georgia has ratified all the core labour standards of the International Labour Organization
International Labour Organization
The International Labour Organization is a specialized agency of the United Nations that deals with labour issues pertaining to international labour standards. Its headquarters are in Geneva, Switzerland. Its secretariat — the people who are employed by it throughout the world — is known as the...
. Flexible labour regulations that give workers the opportunity for a job in the formal sector and easy transitions from one job to another.
Judicial procedure
Reducing corruption in courts was one of the chief priorities of the new government. Since 2004, when the Saakashvili administration came in, seven judges have been detained for taking bribes and 15 brought before the criminal courts. In 2005 alone the judicial disciplinary council reviewed cases against 99 judges, about 40% of the judiciary, and 12 judges were dismissed. At the same time judges’ salaries were increased fourfold, to reduce dependence on bribe money.Unemployment
Unemployment has been a persistent problem in Georgia ever since the country gained independence in 1991. According to Department of Statistics of GeorgiaDepartment for Statistics (Georgia)
The Department of Statistics for Georgia is a governmental body in charge of national statistics and responsible for carrying out a census once in every four years in Georgia .-History:...
unemployment rate stood at 13,6% in 2006. This is by far the highest level among the FSU countries. However, even this figure is misleading and doesn't reflect the vast discrepancies between urban and rural areas of the country.
Nearly a half of Georgia's population lives in rural areas, where low-intensity self-sufficient
Subsistence agriculture
Subsistence agriculture is self-sufficiency farming in which the farmers focus on growing enough food to feed their families. The typical subsistence farm has a range of crops and animals needed by the family to eat and clothe themselves during the year. Planting decisions are made with an eye...
farming provides the principal source of livelihood. Georgian statistics service puts individual peasants into the category of self-employed workers. As of 2007 416,900 peasants were listed as self-employed in agriculture. For large families, heads of households are typically described as "individual entrepreneurs", members of the family that help to cultivate land are classified as "unpaid family business workers". The use of this methodology produces relatively low unemployment rates for rural areas (4,8% as 2006 ).
By contrast, the average unemployment rate in cities is 26%. In Tbilisi
Tbilisi
Tbilisi is the capital and the largest city of Georgia, lying on the banks of the Mt'k'vari River. The name is derived from an early Georgian form T'pilisi and it was officially known as Tiflis until 1936...
unemployment is reported to be reaching 40% Apart from the obvious social strain that widespread unemployment creates, the issue has strong political implications. Some observers have argued that desperation about poor living conditions fuelled the discontent that eventually erupted into violent anti-government protests
2007 Georgian demonstrations
The 2007 Georgian demonstrations were a series of anti-government protests in Georgia. The demonstrations peaked on November 2, 2007, when 50,000-100,000 rallied in downtown Tbilisi, capital of Georgia. People protested against the allegedly corrupt government of president Mikheil Saakashvili...
in November, 2007.
Energy
Electricity generation
Electricity generation is the process of generating electric energy from other forms of energy.The fundamental principles of electricity generation were discovered during the 1820s and early 1830s by the British scientist Michael Faraday...
.
In 2007, Georgia generated 8.34 billion kilowatthours (Bkwh) of electricity while consuming 8.15 Bkwh. Most of Georgia's electricity generation comes from hydroelectric
Hydroelectricity
Hydroelectricity is the term referring to electricity generated by hydropower; the production of electrical power through the use of the gravitational force of falling or flowing water. It is the most widely used form of renewable energy...
facilities. In 2005, the country generated 6,17 Bkwh of hydropower, or 86% of total electricity generation. In 2006 rapid growth in hydroelectricity output (by 27%) was matched by equally strong growth in thermal electricity (by 28%). Since then the share of hydropower has grown even bigger, when Inguri
Inguri
The Inguri , is a river in western Georgia. It is 213 km long, originates in northeastern Svaneti near the region of Racha and plays an important role providing hydroelectric power to the area....
power plant reached full capacity in November 2007. In addition to state-owned Inguri, which has an installed capacity of 1,300 megawatts, Georgia's hydroelectric infrastructure consists of many small private plants.
In recent years, Georgia became a major exporter of electricity in the region, exporting 1.3 billion KW·h in 2010. Hydropower stations of Georgia produce 80-85% of the electricity utilized within the country, the remaining 15-20% is produced by thermal power stations
Thermal power station
A thermal power station is a power plant in which the prime mover is steam driven. Water is heated, turns into steam and spins a steam turbine which drives an electrical generator. After it passes through the turbine, the steam is condensed in a condenser and recycled to where it was heated; this...
. According to Ministry of Energy
Ministry of Energy (Georgia)
The Ministry of Energy of Georgia is a governmental agency within the Cabinet of Georgia in charge of regulating the activities in the energy sector of Republic of Georgia. The ministry is headed by Alexander Khetaguri.-Structure:...
, so far Georgia has been exploiting only 18% of its hydro resource potential.
Georgia's reliance on hydropower leaves the country vulnerable to climatic fluctuations, which requires imports to meet seasonal shortages, but also opens the possibility of exports during wetter conditions. Georgia still has the potential to increase hydro-generated power, through refurbishing existing facilities, as well as constructing new hydropower plants.
Before 2004 Georgia's transmission network was in critical condition, with electricity blackouts being common throughout the country. Since late 2005, distribution has been much more reliable, approaching consistent 24-hour-a-day services. Investments in infrastructure have been made as well.
Currently, a privately-owned Energo-Pro Georgia controls 62.5% of the electricity distribution market.
Georgia has transmission lines that connect its power grid to Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
, Turkey
Turkey
Turkey , known officially as the Republic of Turkey , is a Eurasian country located in Western Asia and in East Thrace in Southeastern Europe...
, Armenia
Armenia
Armenia , officially the Republic of Armenia , is a landlocked mountainous country in the Caucasus region of Eurasia...
and Azerbaijan
Azerbaijan
Azerbaijan , officially the Republic of Azerbaijan is the largest country in the Caucasus region of Eurasia. Located at the crossroads of Western Asia and Eastern Europe, it is bounded by the Caspian Sea to the east, Russia to the north, Georgia to the northwest, Armenia to the west, and Iran to...
. In July 2008 Georgia began exporting electricity to Russia through the Kavkasioni power line.
Georgian Natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
consumption stood at 1.8 billion cubic meters in 2007. Natural gas used to be supplied to Georgia by Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
. In recent years, however, Georgia has been able to eliminate its dependency on imports from Russia, thanks to increased hydroelectricity production, and the availability of natural gas sources from Azerbaijan
Azerbaijan
Azerbaijan , officially the Republic of Azerbaijan is the largest country in the Caucasus region of Eurasia. Located at the crossroads of Western Asia and Eastern Europe, it is bounded by the Caspian Sea to the east, Russia to the north, Georgia to the northwest, Armenia to the west, and Iran to...
.
In addition, all Russian gas exports to Armenia pass through the Georgian pipeline system. Georgia takes 10% of that gas as a transit fee.
Georgia is a partner country of the EU INOGATE
INOGATE
INOGATE is an international energy co-operation programme between the European Union , Turkey and countries of the NIS, with the exceptions of the Baltic States and the Russian Federation. Formally it describes itself as supporting "international cooperation between the European Union, the...
energy programme, which has four key topics: enhancing energy security
Energy security
Energy security is a term for an association between national security and the availability of natural resources for energy consumption. Access to cheap energy has become essential to the functioning of modern economies. However, the uneven distribution of energy supplies among countries has led...
,
convergence of member state energy market
Energy market
Energy markets are those commodities markets that deal specifically with the trade and supply of energy. Energy market may refer to an electricity market, but can also refer to other sources of energy...
s on the basis of EU internal energy market principles,
supporting sustainable energy
Sustainable energy
Sustainable energy is the provision of energy that meets the needs of the present without compromising the ability of future generations to meet their needs. Sustainable energy sources include all renewable energy sources, such as hydroelectricity, solar energy, wind energy, wave power, geothermal...
development, and attracting investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
for energy projects of common and regional interest.
Agriculture
Currently, about 55% of the total labor force is employed in agriculture, though much of this is subsistence farmingSubsistence agriculture
Subsistence agriculture is self-sufficiency farming in which the farmers focus on growing enough food to feed their families. The typical subsistence farm has a range of crops and animals needed by the family to eat and clothe themselves during the year. Planting decisions are made with an eye...
.
Georgian agricultural production is beginning to recover following the devastation caused by the civil unrest and the necessary restructuring following the breakup of the Soviet Union. Livestock production is beginning to rebound, although it continues to be confronted by minor and sporadic disease outbreaks. Domestic grain production is increasing, and will require sustained political and infrastructure improvements to ensure appropriate distribution and revenues to farmers. Tea, hazelnut and citrus production have suffered greatly as a result of the conflict in Abkhazia, a crucial area for planting the latter crops.
While approximately 13.1% of the Georgian GDP is generated by the agrarian sector, crops often spoil in the field because farmers can't sell their goods because of high transportation cost, which make domestic goods more expensive than imported goods. In collaboration with European assistance, Georgia has taken steps to control the quality of natural spring water and how to appropriately sell it.
Viticulture
Viticulture
Viticulture is the science, production and study of grapes which deals with the series of events that occur in the vineyard. When the grapes are used for winemaking, it is also known as viniculture...
and winemaking are the most important fields of Georgia’s agriculture. Over 450 species of local vine are bred in Georgia, and the country is considered as one of the oldest places of producing top-quality wines in the world. Russia was traditionally the biggest export market for Georgian wine
Georgian wine
Georgia is one of the oldest wine producing regions of the world. The fertile valleys of the South Caucasus, which Georgia straddles, are believed by many archaeologists to be the source of the world's first cultivated grapevines and neolithic wine production, over 8,000 years ago...
. This, however, changed in 2006, when Russia banned imports of wine and mineral water from Georgia. Since then Georgian wine producers have struggled to maintain output and break into new markets.
In 2007 Georgia sold 11 million bottles of wine in about 40 countries, less than it sold in Russia alone before the ban was imposed. Total wine sales abroad in 2007 were down by about nine million bottles, forcing many vineyards to sell land, buildings and equipment to survive.
Construction
The transition to legal construction is not without pain. On July 20, 2007 fire brigades had begun demolishing a 13-story building in downtown Tbilisi that had gone up before the reform and was now in danger of collapsing because of faulty engineering. The building had no project or operating license—and didn’t even show up in the city plan. To avoid the many approval procedures, the building company had simply paid off the mayor.See also
- List of Georgian companies
- List of countries by received FDI
- Kulevi Oil TerminalKulevi oil terminalThe Kulevi oil terminal is an oil port on the eastern Black Sea coast in Georgia. The terminal is located in Khobi District, close to the populated area of the village Kulevi, and from the coastal area between rivers Tsiva and Khobistskali.-Construction:...
External links
- Official site of American Chamber of Commerce in Georgia
- Sakartvelos Ekonomika, an online monthly on Georgia's economy.
- online English language business magazine in Georgia