Posted: 10 months ago

We Do Not Have Bad Results. Many Countries Dream of 5% Economic Growth – Appraisals of the IRI Report

The International Republican Institute (IRI) has published its first report after the June protests and rallies in Georgia. According to the IRI press release,  trust in the Authorities has declined overall. 

According to the research, 80% of the respondents named unemployment as a key challenge for Georgia, as well as living costs and poverty. 

“This factor is also a key problem on a personal level. According to 50% of respondents, unemployment, low salaries, poverty and the general economic situation help to form a regretful situation for their families.  Moreover, the majority of respondents (59%) think that the economic problems create major obstacles for Georgia’s democratic development,” the report reads.

Michael Cowgill, a representative of the American Chamber of Commerce in Georgia, noted that the Georgian economy has made progress, but this is not reflected in the lives of ordinary citizens, and responsibility for that lays with both businesses and the government. “I have been working here for 22 years, and the key challenge is  that economic progress has not generated public welfare.” 

The economic situation in regions differs from Tbilisi, and that’s why economic progress is not reflected in the broader population. Priority should be given to establishing a good labor market in the regions, Michael Cowgill said. 

“Business representatives and business associations have been working on creating as many jobs as possible. All of us agree that unemployment is a key challenge. We try to attract more investors and allow domestic investors to expand their businesses. This is our number one objective. I have been working in the education field, too, and I want my students to more effectively ready for labor market better. This is a key challenge. More jobs will overcome poverty. I agree with the IRI report, that people genuinely feel the influence that these problems have. I would like to note that businesses are making progress, especially in the field of tourism, hotel and development sector. GDP indicators are getting better compared to other countries in the region. We have the economy, but I have been working here for 22 years and the key challenge I see is that economic progress does not bring benefits to ordinary people. I believe both businesses and the government should pay much attention to this issue. People should feel that the economic situation in their country is making progress. To attain this goal, I have one suggestion: more attention should be paid to the regions. We have different results in Tbilisi and regions, according to all reports. Students flee to the capital city, because they do not have the same opportunities in the regions. To improve this situation, the business sector should also make the necessary efforts. We should pay more attention to the regions, and create decent conditions for students in Kutaisi and the other regions,” Cowgill said. 

The American businessman has also looked at the current state of polarization among the authorities and the population. Citizens are protesting, but investors should realize that this is a temporary process, and they should attract financial resources to the Georgian economy at normal and even increasing rates. 

“A similar event has become a tradition in this country, every year. However, an investor is smart, and he knows that this is a temporary situation, and it cannot destabilize the economy. Citizens expressed their disappointment, and this is a natural process. They have the right to be disappointed, but this should be expressed in legal ways. Investors frequently find risky situations in Georgia, but they should realize that there’s domestic potential, and they should not let similar a destabilization effect the Georgian economy,” Cowgill said. 

“I appreciate IRI reports, but I do not trust the report prepared by Georgia-based representatives, because their reports have never reflected reality”, Paata Kvizhinadze, first Deputy Chairman of the Parliament’s finance and budget committee commented on the IRI report, under which 80% of the respondents believe that unemployment, living costs and poverty are key challenges in Georgia. 

Poverty is a major problem. This was a problem 30 years ago, and this is a problem even today. We know this without IRI reports, however, I would not specify figures, he said. “Despite various reports, pensions have increased by 1.3 billion GEL since 2012. The health budget has also increased by 1.6 billion GEL to 4 billion GEL. Many things have improved in this way, but poverty was so overwhelming that the relief is less evident today. When we came to power, GDP was 26 billion GEL, but in 2019 we will have 45 billion GEL in GDP. The figure will exceed 50 billion GEL in 2020. Some of our colleague says that the situation has worsened, but this is untrue, because similar statements are not confirmed by real statistics,” Kvizhinadze said. 

In response to the question of why Georgian Dream has failed to defeat poverty in 7 years, despite its welfare and rapid development promises, Kvizhinadze noted that regretfully, no government  has made a breakthrough in the economy. We have not have had bad results. Many countries dream of 5% economic growth, including developed countries, but we wanted higher figures, he said. 

“Our citizens could not enjoy benefits from rapid development because of the regional situation. The economies of all the leading countries has halved, including Ukraine, Belarus, Russia and Azerbaijan. In similar cases a 5% upturn is a great result for the country. This crisis has resolved itself, step by step. Countries are recovering. We expect higher economic growth in 2020. What was hindering  our economic growth in 2012? We did not have trade relations with anybody, excluding Turkey. And I say openly that Georgia has a very bad deal with Turkey. We had trade with the CIS, but the CIS countries abstained from taking active steps because of Russian factor, as Georgia did not have trade relations with Russia in that period.  Now we have free trade with Europe, and theCIS has opened completely. We have free trade with China. We hope economic growth will accelerate further”, Kvizhinadze noted. 

Economic expert Giorgi Tsutskiridze says that the current developments have shadowed many issues, including economic issues, while political developments always impact the economy, especially in developing countries. I would like to note that the country is developing. Net exports are growing and imports are declining. 

According to Geostat, the national statistics service of Georgia, exports made up 3,035.7 million USD, up 10.4% year on year, while the imports made up 7,331.2 million USD, down 3.1% year on year. It is worth noting that the negative trade balance narrowed by 5.3% year on year, and there is a serious chance  for a reduction of external vulnerabilities. Today, the negative trade balance makes up only 41.4% of our external trade turnover. 

“It should be noted that in the same period, exports without re-exports rose by 1.9% year on year, and the figure made up 1,889.3 million USD.

One more important detail is that exports to EU countries are growing as a share of total exports growth dynamics, and the figure makes up 22.6% of total exports. The volume has increased by 14% year on year, and this demonstrates the positive effect of a free trade agreement with the EU. 

As regarding current political developments and their negative impact on the economy: the June 20-21 events have showed that the current instability generated uncertainty and negative expectations, first of all, in terms of currency exchange rate. The major volatility in the GEL exchange rate started on June 25th, as a result of the high import dependence of our economy, growing prices, and growing inflation indicators. These aspects are expected to shrink exports, and economic growth over the medium term on the macroeconomic level. The weak GEL has a positive impact on exports on the one hand, but grows the primary cost of products, because of high import dependence. Growing inflation makes the National Bank of Georgia (NBG) further tightens monetary policy. As a result, export growth rates are expected to fall and have a negative impact on economic growth.

It should be noted that among Georgia’s major exports items in January-October, copper ores and contracts rose by 24.7%, medicines grew by 23.7%, mineral and spring waters grew by 24.6%, and natural grape wines increased by 12.7%. 

Over the past few years, the  statistics taken in 2018 prove the growth dynamics of net exports. Last year, exports rose by 22.7% to 3 355.7 million USD, while imports rose by 15% to 9 136. Million USD. 

I believe that this is because of Georgian government’s decisions for promoting and diversifying exports. First, the successfully completion of free trade agreement negotiations fosters the diversification of export markets and generate additional exports potential. At the same time, the government’s decisions to improve the competitive capacity of the private sector and growing access to financial resources ensures good usage of the opportunities from the free trade agreements,” Tsutskiridze noted. 

According to the IRI report, “the economy and unemployment rate represents a key problem for citizens of Georgia over the past decade, however, political parties do not pay the needed attention to this sector. The leaders of the political parties can develop detailed programs and platforms to tackle the most important problems for our population”, Steven Nix, the Director of the IRI Department of Eurasia, noted.