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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: 290 - (25/02/05)


A human catastrophe
Georgian President Mikhail Saakashvili has said he would temporarily fulfil the executive duties of prime minister following the apparently accidental death of Zurab Zhvania. Zhvania, prime minister, who has died in what is believed to have been an accidental poisoning from a natural gas leak.
The prime minister of the former Soviet republic died at the Tbilisi house of a political friend, who also died, Deputy Prime Minister, Georgy Baramidze, told CNN. An investigation has been launched which may settle the mass of speculative rumours about this.
Zhvania had gone to the home of Raul Usupov, deputy governor of Georgia's Kvemo-Kartli region, to play cards and relax recently and was found dead the next morning, Baramidze said. Bodyguards broke into the house after they couldn't get in touch with the prime minister for several hours, he said. They found both men dead inside the house.

New PM critical to the reform process
Georgia lacks a natural successor to Zhvania, who possessed the most political and administrative experience of any member of Saakashvili's reformist administration. Devi Khechinashvili, president of the Partnership for Social Initiatives, a public policy think tank, contended that one government leader who could at least replicate Zhvania's independence is Kakha Bendukidze, who oversees economic reforms. An influential businessman, Bendukidze returned last year to his native Georgia after nearly a decade in Russia.
During his tenure in 2004 as economics minister, Bendukidze's proved an effective policy planner, but his advocacy of an aggressive privatisation campaign generated considerable controversy. "He has no network here, he is a guy by himself, he has power by himself, and he can push things through, but he will have no political ambitions," said Khechinashvili. 
Georgian newspaper reports have also focused on Defence Minister Okruashvili as a leading candidate to replace Zhvania. Though Khechinashvili agreed that Okruashvili's close ties to the president could enhance his chances, he expressed doubt that the 31-year-old defence minister, often portrayed as the most radical member of the Saakashvili administration, would accept the post of prime minister if nominated. "His [current] position is very powerful, and he is concentrated on a main priority of this government [modernization of the military according to North Atlantic Treaty Organization norms]. So what is the rationale [for him] to deal with social or economic issues right now?" Khechinashvili said. "It is much easier to upgrade the military than it is the social sphere or economy."
Ultimately, how the government navigates the transfer of power to a new prime minister will prove critical to the reform process, both analysts said. The most immediate impact of Zhvania's death will be on the speed of reforms, Ramishvili said. "We have to revise the division of powers between the president and the prime minister. The president will have to take on more strategic and tactical responsibilities to make sure that the government continues on with reforms," Ramishvili said. With Zhvania gone, the powers of the ruling party could become more concentrated, added Khechinashvili, but how that will affect the quality of reforms is unknown. 
With the country still in shock over Zhvania's passing, government leaders remain intent on projecting an image of stability. Foreign Minister Salome Zourabichvili announced that she, along with Saakashvili, who has assumed much of Zhvania's responsibilities on an interim basis, would fulfil all of Zhvania's scheduled appointments in the coming days. Top government ministers, meanwhile, stressed in televised statements that key political and economic policies would not change. 

Saakashvili attends the Davos Forum 
Mikheil Saakashvili, the president of Georgia, travelled in late January to Switzerland to attend the Davos Forum, the international economic forum aimed partly at coordinating efforts to reduce poverty in the world. Last year he had visited the forum as the triumphant leader of the Rose Revolution. This year he arrived on the back of the Orange Revolution in Ukraine, for which the Rose Revolution provided the model, and of his and Ukrainian president Victor Yushchenko's joint nomination for the Nobel peace prize.
The Davos Forum has created a US$25bn world budget to eradicate poverty, and Saakashvili was obviously hopeful that Georgia might be a recipient of part of these funds, although it was never likely to gain much, given that the project is aimed primarily at African and Asian nations.
Nevertheless, given the attendance of the leaders of the richest countries of the world, and the possibility afforded developing nations in both formal and informal meetings to attract investment, it is no wonder that the president was accompanied by Minister of Economic Development, Aleksi Aleksishvili, and State Minister for Economic Issues, Kakha Bendukidze. Their attendance was not without success, and the Swiss government has already promised 750 million Swiss francs for Georgia to finance social programmes and support the development of tourism infrastructure in the country. 
Also of interest was the meeting of the Georgian president with Turkish Premier Recep Tayyip Erdogan, a meeting which led to the further relaxing of the visa and transportation regime between the two neighbouring countries. Additional flights between the two countries with very cheap tariffs were agreed on and this of course will contribute considerably in further economic integration between the two neighbours. "As Turkey is a very good neighbour to us, we want it to make more investments in Georgia and to be a preferential country in investments in Georgia," Saakashvili said, according to Turkishpress.

NATO to open office in Georgia
It is Saakashvili's dearest wish to see Georgia integrated in the West. In this he has the fervent support of the vast bulk of the Georgian people. 
The glamour of the Rose Revolution has made it impossible for the West to ignore these aspirations. Membership in the EU is some way off, given the enormous complexity of the issues involved in meshing an impoverished, ex-Soviet country and economy with such a sophisticated affair. But one day it will probably happen.
Meanwhile, the West is offering closer cooperation with NATO, even though full membership is not on the cards, given Russian sensitivity on the matter.
A group of NATO experts arrived in Tbilisi recently to prepare the official opening of an office of the NATO Special Representative for the South Caucasus and Central Asia, Nikolai Laliashvili, chief of the defence policy and European integration Defence Ministry, said.
"It will be in Tbilisi, but will deal with Azerbaijan and Armenia, rather than Georgia only," he said. Laliashvili underlined that the NATO special representative's appointment is an extremely important event for his country in terms of stepping up the interaction with the Alliance, especially in light of the organisation's approving of the programme of cooperation with Georgia in 2004.
The decision to send liaison officers and a special representative of NATO to Transcaucasia and Central Asia was made at the NATO 2004 summit in Istanbul. Georgia voiced its intent to join NATO during the Prague summit in 2003.

No one pressing Russia out of Georgia 
Aware of the extreme touchiness of Moscow about Tbilisi's overtures to the West, Saakashvili has gone out of his way to describe as erroneous the opinion that Russia is being pressed out of Georgia. "It's a great delusion that someone is trying to press Russia out of the region, or that the Georgian side is creating problems for Russia. The last thing Georgia wants is to be a source of problems for Russia," Saakashvili told Interfax, stressing that there were no anti- Russian moods in Georgia. 
He said Georgia is counting on a thaw in relations with Russia, especially after Russian Foreign Minister Sergei Lavrov's visit to Tbilisi, set for February. He said some of the disputable issues in Russian-Georgian relations are being touched upon in the bilateral framework agreement.
Nevertheless, this is for public consumption only. The Georgians want nothing more ardently than to have the Russians right out of their hair. Unfortunately this is never likely to happen. The two northern provinces of Abkhazia and South Ossetia seem to be gone for good, to become 'de facto' appendages of Russia, in all probability. The best thing for them to do is to make the best of what they have left - a marvellous country as it so happens, one of the most attractive places in the former Soviet Union.

Economy first - stupid
Saakashvili is entirely at one with the well-known precept of Clinton, that won him two elections to the US presidency, "the economy first - stupid." He is putting in place measures to revitalise the moribund Georgian economy.
A financial amnesty law and new tax code became operative on January 5th. They offer new rules for Georgian business and promise new jobs and economic growth for the entire population.
However, it remains to be seen how they would create an impact on the country's economic development in 2005. According to economists, there will be a lot of confusion in the new legislation. Critics argue that both documents have been rapidly adopted and brought into force. Last December the new tax code was adopted by the parliament at an extraordinary session and came into effect earlier in January, except for one paragraph which sees the decrease of value-added tax (VAT) from 20 to 18 per cent, which would be effective in six months time. Several economists argue that it would have been better if the period between adoption and implementation had been longer, so as to allow businessmen, experts and taxation officers time to study its implications more thoroughly before it came into effect.
Ample time is required to study the document, which is 180 pages long, for instruction and comments regarding particular paragraphs and items of the tax code to be elaborated. Executive Director of the Federation of Georgian Businessmen, Giorgi Isakadze, said that this lack of time to create special instructions would necessitate a number of amendments to be introduced to the tax code. Businessmen, meanwhile, have assessed the new tax code and said that they are not pleased about the delay in introducing the two per cent decrease in VAT.
However, given that about 50 per cent of the current budgetary revenues come from VAT, the government's move is understandable. The tax increases are justified by the government as necessary to try to reduce high levels of smoking and drinking in the country, but smokers and drinkers are naturally unhappy about the increases, meaning that initial reactions to the code among ordinary citizens have been fairly negative.
Georgian economists as is standard with economists, remain divided over the effects the tax code and financial amnesty law will have, some arguing that their impact will be little, due to faults in both laws resulting from their hasty adoption, others arguing that the bills have much to commend them and would certainly have a positive effect on the economy. The other economic issue of note for 2005 relates to whether the government will be able to further increase budgetary revenues in 2005 following last year's increased revenues. This depends on several factors, including the sources of increased budgetary revenue. If the increase was the result of economic growth, and statistics suggest that the country experienced strong growth in 2004, then further increases can be expected this year.
However, several economists think that financial progress was achieved as a result of better administration of tax revenues rather than economic growth. They note too that money expropriated from former officials was an important source for the budget, particularly now the new financial amnesty law has been brought into force.
The amnesty law and tax code is very hopeful. It was felt in 2004 by many commentators that the Saakashvili administration was unlikely to turn the economy around in its first twelve months, and that 2005 would be the turning point for the economy, assuming the efficacy of its policies. The Georgian people will certainly hope that this is the case, and that the new legislation results in the increased investment leading to economic growth that the government promises.

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ENERGY

Tbilisi to import 1.3x more electricity from UES


Georgia recently reached an agreement with the Unified Energy System (UES) of Russia energy utility on larger electricity exports to Georgia, sources in a Georgian delegation, led by Energy Minister, Nika Gilauri, said, Interfax News Agency reported.
The UES press service confirmed the report, noting that electricity exports will be increased to 350 megawatts from the almost 270 megawatts Georgia imports now. Also, UES and the Georgian Energy Ministry discussed the operation of Georgian enterprises controlled by the Russian energy holding, including the Telasi energy company in Tbilisi. Gilauri told the press that electricity imports much be increased, given plans to shut down the Inguri hydro-power plant for scheduled repair on March 15th. The repair work is expected to last until mid-June.

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SHIPPING

Armstrong Holding purchases Georgian Ocean Shipping Co

Armstrong Holding purchased the Georgian Ocean Shipping Company for US$161m, The Messenger quoted the late Georgian Prime Minister, Zurab Zhvania, as telling a news conference organised by the Tbilisi-based Imedi radio station on January 31st.
This statement is a reversal of the Georgian government's earlier announcement that a British-Austrian consortium led bought ASP Ship Management Company privatised Ocean Shipping Company. "It was my mistake, when I announced the British-Austrian consortium as the winner of the privatisation of the Shipping Company. These companies have not set up a consortium. The new owner of the Georgian Ocean Shipping Company has become Armstrong Holdings Corporation, which was founded in 2004; while ASP Ship Management will simply conduct the management of purchased ships," Zhvania said.
Detailed information about the newly established Armstrong Holding company is unavailable. "It is a widespread practise, when there is a company, which owns ships and other company conducts the management," he added. He also said that ASP Ship Management was among those companies, which made privatisation bids. "However, after the price went up the company gave up loans to participate in the privatisation," Zhvania said.
Initially, the Georgian government reported that seven companies were bidding for the Shipping Company excluding Armstrong Holding. Zhvania explained that Armstrong Holding made its bid on January 10th, just one day before the deadline for making bids expired. Under the contract, Armstrong Holding will have to pay US$161m, out of which US$89m will go to the state budget and US$72m to cover the debts of the Georgian Ocean Shipping Company. 

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TRANSPORT

South Caucasus countries discuss regional railway

Visiting Russian Transport Minister Igor Levitin was expected to discuss the issue of restoring the Georgian-Russian railway link via Abkhazia with the Georgian leadership. Armenian and Azerbaijani governmental delegations were also expected to join the talks in Tbilisi on January 10th, The Moscow Times reported. 
Levitin, who visited Georgia and Armenia last November, proposed that the countries of the South Caucasus set up a joint Russian-Georgian-Armenian-Azerbaijani company that would restore traffic on the TransCaucasus Railway, which ceased functioning after conflicts in Abkhazia and Nagorno-Karabakh in the early 90s. The railway, which stretched more than 2,300km during Soviet times, connected Black Sea ports with central Russia, operated passenger services and handled more than 15m tonnes of transit cargo per year.

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