STRONG EXPORT GROWTH HELPS GEORGIA AVOID ECONOMIC DISASTER IN 2000.

Publication: Monitor Volume: 7 Issue: 85

Georgia spent much of 2000 wrestling with a serious budgetary crisis, and a severe drought which reduced agricultural production by some 15 percent added further gloom to the country’s economic outlook. Nonetheless, a 39-percent surge in exports saved the economy from recession, as 2 percent GDP growth was reported for last year. While Georgia–like many CIS countries–benefited from strong growth in exports to Russia, Georgia’s non-CIS exports grew even faster. Thanks in part to vibrant trade with Turkey–which in 2000 overtook Russia as Georgia’s most important trading partner–non-CIS exports constituted 58 percent of Georgia’s total exports, up from 53 percent in 1999. According to the State Department of Statistics, scrap ferrous metals were Georgia’s biggest export in 2000, accounting for 10 percent of total foreign sales. Other important exports included wine, nuts, fertilizers, precious metal ores, ferrous metals, manganese ores, aluminum waste and scrap, crude oil and copper ore.

But despite this export surge, more than one-third of Georgia’s medium-size and large industrial enterprises remained idle in 2000 due to a lack of capital investment, poor management and irregular electricity supplies. Unrealistic conditions set for privatization tenders combined with rampant corruption to turned many potential foreign investors away and depress investment spending. The difficult conditions faced by foreign investors were underscored in March, when an agreement allowing the Czech firm Sagaprint to purchase a 75 percent stake in the manganese plant Chiaturmarganets (one of the country’s largest industrial enterprises) was annulled by the Georgian government. Sagaprint had signed the contract in August 1999 promising to pay off Chiaturmarganets’ US$5.5 million debt and boost production to 200,000 tons per year. Although Sagaprint had invested US$3 million in the plant, Georgia’s chronic energy problems, which have led to irregular electricity supplies, complicated its efforts to boost production.

This year, loans from the IMF and World Bank as well as the restructuring of Georgia’s debt to the Paris Club in March have greatly improved the country’s economic position. Moreover, the construction of new oil and gas pipelines could eventually reduce Georgian dependence on Russian energy imports. Under pressure from international financial institutions, the Georgian government has finally started to get serious about limiting corruption and increasing tax and customs collection. Although progress will likely be slow, such measures should eventually boost the country’s chances of attracting greater direct foreign investment, which could help boost Georgia’s long-term economic growth prospects (National Bank of Georgia’s Bulletin of Monetary and Banking Statistics, no. 12, 2000; Russian agencies, January-March 2001).

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