THE GEORGIAN ECONOMY: FROM CIS GROWTH LEADER TO SLACKER.

Like other CIS countries, Georgia shows signs of shaking off the economic slump which followed the August 1998 Russian financial crisis. But while neighboring Armenia and Azerbaijan reported GDP growth in the 6-7 percent range during the first three quarters of 1999, Georgia is something of a laggard. According to data released recently by the CIS Statistical Office, Georgian GDP grew by only 2.4 percent during the first three quarters of the year (CIS Interstate Statistical Committee). This is a far cry from the pre-August 1998 period, when Georgia was one of the CIS’s fastest growing economies, posting 8.6 percent GDP growth in 1996 and 11.3 percent growth in 1997.

Georgia’s rapid GDP growth during the mid-1990s reflected a confluence of positive factors. The cessation of hostilities, the consolidation of Eduard Shevardnadze’s presidency, and improved relations with the IMF and World Bank helped the government and Georgian National Bank to reduce inflation and stabilize the lari. This in turn led to rapid growth in agriculture, construction, and the service sector, much of which fed off of Georgia’s ubiquitous informal economy. The reconstruction of the Georgian portion of the Baku-Supsa oil pipeline boosted foreign investment and attracted foreign exchange. According to official data, Georgian per-capita GDP rose from US$245 in 1994 to US$914 in 1997.

The double whammy of the Russian crisis and a severe drought brought the Georgian recovery to a screeching halt. GDP dropped some 10 percent during the fourth quarter of 1998, as exports to other CIS countries (chiefly Russia, Azerbaijan and Armenia) dropped by about 25 percent. GDP growth therefore slowed to 2.9 in 1998, and remained at that level during the first three quarters of 1999. To be sure, some sectors are reporting strong growth: Freight transport increased some 9 percent during the first nine months of last year, thanks largely to the completion of the Georgian portion of the Baku-Supsa oil pipeline, which went on line in April. Retail trade also grew by some 5 percent during the first three quarters, as household spending recovered from the panic that followed the lari’s sharp declines in late 1998 and early 1999. Also, exports to non-CIS countries were up 30 percent. Industrial growth remained flat, however, while investment spending dropped by a stunning 46 percent also a result of the completion of Baku-Supsa. Exports to other CIS countries dropped another 5 percent, while imports were down 45 percent.

PROSPECTS FOR RAPID GROWTH HINGE ON FOREIGN INVESTMENT.