Posted: 4 months ago

Serious Recession, Slowdown in Investments and Licensing – Development Sector Responds to Deputy Economy Minister

“Economic growth has been diversified  – construction  was one of the key contributors to economic growth in July 2019.

Essentially, an upturn was also recorded in industry and trade. It is noteworthy that a fundamental improvement in external trade indicators significantly determines economic growth. In July 2019, exports grew by 17.5%, and the trade deficit declined by 83.5 million USD, Deputy Economy Minister Ekaterine Mikabadze noted several days ago when appraising the Geostat report. 

According to Geostat, the national statistics service of Georgia, unusually high economic growth rates were recorded in July 2019, as compared to the same period in 2018, and the figure made up 6.1%. The average economic growth in January-June was at 5.1%. 

“Construction, the processing industry, trade, real estate operations  and communal, social and personal services – these sectors have seen growth in July. Other factors promoting growth also improved – 7.8% upturn was recorded in net money transfers,  an important element of domestic demand and consequently, its growth, has had a positive impact on economic growth”, Ekaterine Mikabadze noted. 

Has the development sector actually increased amid a flurry of regulations introduced over the past period? The Caucasus Business Week (CBW) has explored the issue. 

Tornike Abuladze, ARCI Executive Director and member of the Developers Association, explains that  about 6,000 job places were lost in the development sector, investments shrank. Therefore,  Abuladze has expressed astonishment regarding the Deputy Economy Minister’s statement that the growing development sector has had a positive influence on economic growth in July 2019. 

The situation reported in the development sector over the past 6 months has resulted in an absolutely different reality, Tornike Abuladze noted. 

“I could not have expected such a statement, because our sector feels like it has entered a slowdown in real life. Through the first half of 2019, we talked about a serious recession in the development sector – investments declined, and in general, the pace of licensing shrank essentially. At the same time, new regulations seriously damaged the sector. Each regulation is normal when isolated, but they were enforced simultaneously, and neither the business sector nor regulators were ready for the new reality. There are certain problems in this sector, but I do not think it is expedient to introduce so many regulations simultaneously”, Tornike Abuladze noted. 

In the first quarter of 2019, the development sector’s turnover started decreasing, and the losses totaled 9.6%. 

According to the reports, the previously growing sector has seen serious losses in 2019. As a result of intrusive regulations in the banking and development sector, more than 4,000 people lost their jobs, thousands of our citizens cannot buy private property, and this previously dynamically growing sector is now in decline. 

Based on Geostat reports and other research work on this issue, development sector growth was protracted as a result of exaggerated regulations, mainly bank regulations. Over the past few years, there were no special factors in the Georgian economy that would frustrate the sector’s expansion. 

The past several years have recorded very dynamic and rapid growth in the development sector. According to 2018 indicators, the total ratio of the development sector in GDP made up about 9%. Based on real estate operations, the development sector’s share of GDP is about 17%.