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GEORGIA



 

In-depth Business Intelligence

Key Economic Data
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 3,937 3,324 3,100 126
         
GNI per capita
 US $ 830 650 590 145
Ranking is given out of 208 nations - (data from the World Bank)

Books on Georgia

REPUBLICAN REFERENCE

Area (sq.km)
69,700 

Population 
4,693,892 

Principal 
ethnic groups 
Georgians 68.8%
Armenians 9% 
Russians 7.4%

Capital 
Tbilisi 

Currency 
Lari

President 
Mikhail Saakashvili



Update No: 308 - (29/08/06)

Relations with Russia sour further 
Relations between the former Soviet stable-mates, Georgia and Russia, have been strained in recent months over the presence of Russian peacekeepers in conflict zones with two self-proclaimed republics in Georgia and other issues, including a Russian ban on the import of Georgian mineral water and wine. 
Moscow has never accepted the Rose Revolution that ended the career of the old Soviet war-horse, former president Eduard Shevardnadze, and saw Georgia take a decisive turn to the West. 
Georgia is potentially the best place in the FSU, where the top boys in Moscow could go for a great holiday in superb dachas on the Black Sea coast both Stalin and Beria had them, and cheered by the best food and wines in the socialist camp, other than Hungary. Its independence was one of the bitterest blows for the men in the Kremlin in 1991; and then came its definitive loss in 2004.

Saakashvili pulls out of CIS summit
The new president, Mikhail Saakashvili, a young Western-educated lawyer, pulled out of an informal CIS summit in Moscow in July because a separate meeting with the Russian leader was impossible, Georgia's foreign minister said. Saakashvili had been due to arrive in the Russian capital for the July 21-22 meeting of leaders from the Commonwealth of Independent States, a loose union of 11 post-Soviet nations, where he had earlier said he hoped to talk with Putin about complicated bilateral relations. 
"Deputy Foreign Minister Merab Antadze had brought specific proposals from Georgia but until the last moment we received no answer about whether the meeting would be held," Gela Bezhuashvili said. "We received an answer today that there would be no separate meeting but only contacts during the summit events," the minister said. Putin was clearly wanting to avoid any discussion of the ban on imports and contentious matters concerning 'peacekeepers,' who would be better termed 'war-enablers.'
Bezhuashvili added that the sides would have had no opportunity to discuss serious bilateral issues in such circumstances, which is why the Georgian leader had decided against attending the informal CIS summit. The minister said the country hoped for understanding from Russia and other former Soviet republics. 
The minister said that Georgia would work to arrange a meeting of the two presidents. "We will continue to work with Russia to arrange a serious meeting oriented to a result that would lead our bilateral relations out of the current impasse," the minister said. 

Inflationary threat to the embargoed economy 
Moscow's recent salvos in an economic skirmish (the banning of certain Georgian goods in the Russian market, above all wine) have highlighted the threat posed by inflation. Georgia has already absorbed heavy losses from the Russian embargo. Now, because the country has seen a drop-off in foreign currency revenue from exports, the lari is under considerable pressure. Some experts estimate that by the end of this year, the lari will devalue by almost 20 per cent, which is sure to be felt amongst an already hard-hit population. 
Devaluation does not always involve inflation, as is often erroneously said (for instance, it did not do so in the UK, in the period after it left the ERM of the EU in 1992). But it certainly can do so under certain circumstances, such as obtain in Georgia today, a ravaged economy with widespread disruption in supplies, notably energy in winter and spring.
Inflation is likely to remain an acute problem for Georgia, and the country has been attempting to tackle it through a number of different means. As a campaign promise for the upcoming local elections, the Georgian leadership has vowed to curtail the alarming inflation rate. 
Financial expert Giorgi Tsutskiridze, responding to an article in Kviris Palitra, predicted that if the demand for foreign currency increases, but the influx of money into the country falls, the lari will be weakened. According to him, until recently, exports of wine, mineral water, and other relatively lucrative goods were increasing, bringing in a gradually growing stream of foreign currency. This has partly dried out as a result of the Russian embargo, raising the spectre of dramatic effects on Georgia's economy.
Tsutskridize thinks that inflation rates can be brought down through a few measures: more foreign investment in the country, more allotments from the IMF or World Bank, and/or the National Bank of Georgia pulling currency from circulation. The National Bank is preparing to do just that. 

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Saakashvili Unveils New Economic Initiatives
There is an even more urgent economic problem, mass unemployment. President Saakashvili announced on August 4 that the country's major economic goal will be a twofold reduction of unemployment by 2009 through the creation of a more business-friendly climate.
In his late-night televised address to the nation the Georgian leader unveiled plans to reform tax administration and to re-introduce a tax arbitration system. Saakashvili also announced the intention to launch a new government-sponsored programme involving three-month internships in private businesses for at least 50 000 citizens, which will cost about GEL 22,5 million (roughly US$12,7 million).
Saakashvili said that Georgia has achieved much since the Rose Revolution, but "these achievements are still fragile." "Now it is time to move on the next stage of economic development," he added.
The President noted that the major challenge for Georgia is unemployment. "Our major goal now is to reduce unemployment at least by two-fold before the expiration of my first presidential term [by 2009] by giving impetus to the economy," Saakashvili stated. He stressed that new jobs should be created not only in Tbilisi, but in all regions of Georgia, "even in the most remote places of the country."
"We have done much that is positive, but of course all these positive [economic] trends should be of a more irreversible nature. Of course Georgia needs much more foreign investments. Foreign investments are coming into our economy, but it needs a much more transparent, much more forecasted [environment], as well as guarantees for long-term stability," Saakashvili said. 

Reforming Tax Administration 
Saakashvili said that the first thing the country needs in order to give the economy new impetus is "modern and efficient" tax administration and the "decriminalisation of financial relations" between the state and entrepreneurs. 
"During the first years of the drastic fight against corruption, which still continues, of course the major part of relations with an entrepreneur was carried out [by the state] through the tax police. As soon as the tax police enter into a business entity [for a probe], this business entity is automatically criminalized because it immediately enters into a relations based on a criminal code, which means moving into a very unpleasant relationship," Saakashvili said.
"We should carry out a reform of the tax service, envisaging the unification of the tax [department] and customs [service], where the tax police will be only one of the units and where [the tax police] will be the last resort and last point of relationship with business, and it should only be used in extremely rare cases. All the rest should be solved based on civil relations between the state and business."
By "tax police," Saakashvili was referring to the Financial Police - although he did not mention this term. However, when the text of his speech (in Georgian) was posted on the President's official web-site, the term "tax police" was changed to "Financial Police." 
The Financial Police was set up in February 2004 to fight economic and financial crimes and to probe into tax evasion cases. The unit, which is currently part of the Finance Ministry and is under the direct subordination of the President, has turned into an extremely influential institution and has often been the target of fierce criticism for its high-handed tactics. Saakashvili said that this reform "will need many months" to come into effect.
"A businessman should know that he has relations with a civilized state, and business should have a feeling that the state is not only a tool for punishment. Punishment should be the last resort used by the state," Saakashvili said.

Re-Introducing Tax Arbitration 
President Saakashvili admitted that Georgia needs a "much better judiciary system" and the re-introduction of tax arbitration, which was abolished in April, 2005 - less than five months after it was introduced. But Saakashvili added that new tax arbitration system will be "much better" and that the state and businesses will be in equal positions. 
He said the new arbitration system should be introduced by the beginning of 2007. 
"We need to create a [tax] arbitration system, but not like the one we established a year ago. That [previous arbitration system] was the government's mistake, as some people were businessmen and arbiters at the same time, which gave no chance for the state to win [disputed cases]. The state will no longer be a fool," Saakashvili said.
"We are ready to invite foreign arbiters and pay them high salaries, and we will let them, together with local real arbiters - not like those false arbiters we had previously - solve disputed cases," he added. 

Microcredits 
He said that the state is ready to start a microcredit programme from January 2007 for those willing to launch private businesses, especially in the agricultural sector. 
"Every person should be able to receive credit. But we should prepare people for entrepreneurship. I instruct the government to launch the re-qualification of our citizens to prepare them for entrepreneurship. The government should assist these re-trained people in launching their businesses. We are ready to allocate funds for this programme. 

Lack of Human Resources
Saakashvili said that although there is unemployment, the country lacks qualified cadres in various sectors, especially in the fields of construction and services.
"This is a very serious issue, because we had an absolutely dismantled education system… The Education Ministry is now working on the creation of new re-training centres. Seven centres of this kind will be opened in September, including in Kobuleti [Adjara] to train tourism service staff; in Tbilisi we are going to open [a training centre] for the construction business. But we will need much more, we might need thirty, forty, or even fifty [re-training centres] of this kind, and it will take time," Saakashvili said. 
State-Funded Internships The Georgian leader announced that starting from September the government will finance a three-month internship program in private businesses for at least 50 000 citizens.
"I know there are many people in Georgia who not only can not find a job, but they are not even looking for jobs… I want to tell you, my dear compatriots, that the state can no longer serve as an employer… So we urge both citizens and businesses to show initiative," Saakashvili said.
He said that the government will pay GEL 450 (roughly US$254) to each participant of the program during the three-month internships in various businesses. 
"This is important because we will make people come out of their homes, while the business will be able to meet many skilful people. Of course businesses will not be obliged to hire these people after three months, but I am sure after these three months many [participants of the program] will be able to find jobs, at least in other businesses. We should inspire willingness and work skills, and we should let them [citizens] get a taste of a modern economy," Saakashvili said.
"I want to tell our businessmen that you will not lose anything as a result of this program; you will have an unpaid employee for three months without any obligation to recruit them after three months. But through participation in this program you [businessmen] will take a huge patriotic step," Saakashvili added.
He said that the government will fund internships for an additional 100 000 citizens for next year "and if there is more interest we will allocate even more funds for this programme." 
"In addition, we are ready to consider a further reduction of taxes after these 150 000 citizens undergo this programme. And also here I want to remind our businessmen that starting from this September, we will have zero percent custom dues for almost 90% of products. And I also want to remind you that we have one of the lowest taxes among the Eastern European states," Saakashvili added.

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BANKING

Vneshtorgbank plans to invest 135 million 

Russia's Vneshtorgbank plans to invest 135 million Euro in the Georgian economy over the next year. The plans were announced at a meeting between VTB officials and National Bank of Georgia president, Roman Gotsiridze, on July 14, the National Bank said, Interfax News Agency reported.
VTB has decided to raise loan resources for the Georgian market to 180 million Euro, he said. It also plans to invest in the energy and chemicals industries and in the United Georgian Bank (VTB acquired 50 per cent plus one share in the UGB in January 2005).
The meeting also covered additional investment in the bank's subsidiary in Georgia - Energy Invest, which owns the chemicals plant Azot in Rustavi and the gas-powered station in Gardabani, Gotsiridze said.
United Georgian Bank is Georgia's third largest bank by asset volume. UGB assets on May 1, 2006 totalled 441.4 million laris (245.2 million Euro), liabilities amounted to 398.3 million laris and share capital - 43.1 million, the National Bank said.

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