Lying at the crossroads of Europe and Asia, Georgia has a history rich in both culture and turbulence. As a nation of resilience and capability it has risen in international rankings and indexes and continues to meet the challenges of development head on. This is strengthened by its stance on tolerance and respect of all people and their contribution to the country’s future. It has used its strategic location, culture and heritage—influenced by the Romans, Greeks, Besantians, Arabs and Persians—to form a solid international platform to connect to all corners of the globe and contribute to the international arena. Currently, the primary industry leading the economy is the service sector followed by the industry, agriculture and others.
FACTORS LEADING TO DELAYED GROWTH
With the fall of the USSR in 1991 the economy of Georgia also fell. However, that year marks the independence and starting point for autonomous, albeit slow and painful, development and growth. Due to a near constant occupation throughout the 20th century Georgia did not have “the advantage to open up and have direct economic relations with the rest of the world.” Mr. Machavariani acknowledges that despite huge achievements in developing democratic institutions, reducing corruption, fast-tracking the European and EuroAltnatic integration and adopting the dynamic reforms’ agenda, Georgia has an ongoing security problem as two of its inalienable regions - Abkhazia and Tskhinvali remain under foreign occupation and the citizens there don’t have the full freedoms and opportunities that other Georgian citizens enjoy.
“We have done a lot. The nation itself is firm on the reform. It was a demand and a request from people. They wanted change, progress. The world is going further and we have to catch up and not be left behind.” - Mr Levan Machavariani
CONNECTING WITH OTHERS
Since the restoration of the independence Georgia has become a favoured investment spot due not only to their location but also to their liberal policies after a challenging shift from a soviet to a modern policy approach. The government set forth economic policies and reforms to ensure inclusive and sustainable development and open and fair market competition. This includes protection of property, property rights and intellectual rights and freedom of expression. This “liberal, stable and corruption-free business environment” has gained Georgia high ranks on the Ease of Doing Business scale and the Index of Economic Freedom to name a few.
Trade liberalization and integration into the world’s leading markets have become Georgia’s top foreign policy priority. Georgia has taken a huge step forward by signing the Association Agreement with the EU including the DCFTA.
The agreement eliminates tariff and non-tariff barriers in trade with the EU and regulates the wide range of trade related issues. The DCFTA will significantly increase country’s attractiveness as a valuable investment destination.
“It is the achievement of the whole nation.”- Mr Levan Machavariani
Georgia has free trade regime (FTA) with the EU, Turkey and the CIS countries, totally 900 million consumer market. At the same time, Georgia has preferential export regime (GSP) with the US, Canada, Japan, Switzerland and Norway, additional 500 million consumer market. Negotiations have been finalized with the EFTA countries (Switzerland, Iceland, Norway and Lichtenstein) on Free Trade Agreement and the signature of the document is planned on June 27, 2016;
The negotiations on the establishment of the Free Trade Regime have already started between Georgia and China. The third round of the talks will take place in July 2016 and the Government of Georgia is optimistic that the negotiations will be concluded by the end of 2016, thus Georgia will be the first country in the region that will have free trade agreement with China creating vast opportunities for the Georgian producers to increase their exports to the vast Chinese market.
Although not a Muslim country, Georgia has had positive ties with the Organization of Islamic Cooperation and many OIC member countries, especially Turkey and Azerbaijan. More recently, they have strengthened and expanded ties with OIC countries in the Middle East and North Africa. In fact, the Middle East is one of the primary investors in the country. Georgia is working to build mutually beneficial relationships with other OIC countries as well which is observed in the opening of the Georgia Embassy in Kuala Lumpur in 2013.
“We have very positive relationships with OIC countries and we are looking forward to strengthen these relationships in economy, trade, culture, education, sports and people to people contact.”- Mr Levan Machavariani
In 2016 the Government introduced the 4 point plan to further spur the economic growth:
SOLUTIONS THAT WORK:
THE 4-POINT PLAN
The objective of reform is to foster development and encourage inclusive economic growth by creating greater opportunities in the civil, private and NGO sectors. Additionally, special attention has also been given—through the National Strategy for Protection of Human Rights in Georgia 2014-2020 with action plan by the government for 2014-2016—to facilitate opportunities for the country’s religious and ethnic minorities to contribute to civil society public administration.
1. Tax and Investment Reform: supporting SMEs within the various sectors has been identified as a crucial element for development and growth. Programs have been specifically tailored to meet not only the commonly shared challenges of start-ups but also the differing challenges by sector. One of the bigger barriers for start-ups is financial investment. The Partnership Fund and the Ministry of Economy and Sustainable Development have set up an initiative to meet that challenge. This initiative will provide qualifying start-ups with associated high-risk investments with investment opportunities. The state also has a number of programs and funds for investors such as the Georgian Co-Investment Fund and the Produce in Georgia program.
In addition, current policies that have been identified to inhibit investment opportunities and prevent a healthy entrepreneurial environment are in the process of being amended. Minor economic infractions will no longer criminalised and offenders will no longer subjected to pre-trial detention as is currently the practice. Also, by aligning the national tax system with the Corporate Income Tax (CIT) system non-profit businesses who meet required conditions will have an income tax exemption. These initiatives and policy measures will lessen the complexities of doing business therefore encouraging entrepreneurship and investment.
2. Government Administration Reform: boosting effective and efficient governance and administration is considered key to improving the lives of the people. To do this they will improve the quality and accessibility of public services available to the private sector. These services will be managed through a special Front Office unit, within the Administration of the Government of Georgia, which will oversee the service process, cut decisionmaking time and increase transparency. In this way resources will be utilised in an efficient manner and provide ease of accessing services, decreasing time spent on service providing and miscommunications.
3. Education Reform: the objective of this plan is to close the gap that exists between the skills graduates have and the skills actually needed by the private sector. To address this challenge measures are being taken to comprehensively involve the private sector in the planning, delivery and quality control of vocational education and create a platform allowing students to learn through work-based approaches. Students will learn “by doing” in a real work environment along-side private sector workers allowing them to be perfectly trained with the precise skills needed by the sector. When both parties, businesses and colleges, have a vested interest and role, benefits are seen in many areas. This type of vocational training increases education opportunities, raises employment, encourages entrepreneurship and ultimately meets market demands and improves the quality of life of the people.
4. Infrastructure Reform: infrastructure reform is Georgia’s tool to extending links outside the country, strengthening industries within the country, especially tourism, and enhancing its role as an international logistics hub. The main project underway is The International East-West Highway which at 185km links Central Asia to the EU and is the main channel of transport between Georgia, Azerbaijan, Armenia and Turkey. Other important projects include, but are not limited to: Anaklia, a deep water port for receiving large cargo ships; The BakuTbilisi-Kars Railway between Turkey, Georgian and Azerbaijan; the Silk Wind, a Multi-modal block train that will act as a container transport channel from China, through the Caucasus region and on to Europe; and The Lapis Lazuli, a transport channel between Afghanistan, Turkmenistan, Azerbaijan, Georgia and Turkey. Within the country various projects are ongoing to connect and improve popular ski resort areas, airports and access to remote villages.