2013 - Test Year of Georgian Economy
17 January, 2013
The year of 2013 promises to be a test year of Georgian economy: if political and business environment will remain stable and liberal and new government shows due management skills, the country may enjoy the forecasted USD 2 billion of Foreign Direct Investments (FDIs) inflow in 2013. Otherwise, with its small market capacity against the backdrop of the impending second tide of economic crisis Georgia seems scarcely able to attract attention of foreign investors.
Georgian new government came with new plans and big expectations to attract USD 2 billion of FDIs this year. A newly created Agriculture Fund focused to attract private investments for agriculture development in the country as well as Partnership Fund managing with the state-owned assets also plan to attract USD 1 billion and USD 2 billion respectively.
The investment plan seems quite ambitious if we take into account that USD 2 billion inflow in Georgia in 2007 alone was the biggest ever investment in the country since its 20 years of independence. The figure has only been shrinking starting 2008 due to the August war conflict with Russia and global economic crisis. Investments started recovering slowly to around USD1.1 billion in 2011. First two quarters of 2012 were more-less hopeful with USD 269.4 and USD 219.4 million respectively however the figure dropped to USD 195.4 in the third quarter and is believed to be even less in the last quarter of the year [official statistics of the fourth quarter is not released as yet] that lags much behind of USD 316.6 million and USD 342.6 million of similar periods of 2011.
Economic growth also slowed down since October of 2012: in October GDP grew by 6.7% and 8.2% in the first two quarters of 2012 but dropped to 7.5%, in the third quarter. Real economic growth reduced to 5.5% from 8.8%, 6.5% and 7% of July, August and September of 2012 respectively.
Traditionally the FDIs and economic growth figures are higher by the end of the year but since the year of 2012 was the year of parliamentary elections economic analysts assure the economic and FDIs slow down was the result of political uncertainty that always follow elections. Specifically this past elections that was crucial to Georgia as brought the first ever peaceful shift of power in the country: Georgian Dream political coalition won power to the ex-ruling National Movement.
Hopes that situation would have become clearer after elections fell flat. Political screen aggravated and inclined to diarchy as far as Mikheil Saakashvili, President of Georgia coming from National Movement, acts as an ardent opposition of new government and does not abash to render to black PR of governmental policy sending false information to the international community that new government undermines democracy and business climate of the country.
Saakashvili’s presidency expires in October of 2013, the year he was supposed to cohabitate with new government. However, Saakashvili who has an authority to dismiss the new government in 6 months seems willing to use this possibility. The snap parliamentary election is also not ruled out. This kind of internal political risks plus the impending second tide of economic crisis globe over makes economic connoisseurs less optimistic on account of ambitious FDIs prognosis to Georgia in 2013.
“How can I attract investors when Saakashvili comes out and sends false information that investment projects are suspended in Georgia and the business climate is deteriorating? Ok I’ll tell them that this is a lie but who are investors supposed to believe me, an ordinary citizen or the President of the country?” Ditrikh Muller, a co-founder of Georgian Investment Group, wonders. “I expect few investments to come on our way until Saakashvili stops making the black PR of Georgia.”
Prospects of reopening Russian market [closed in 2006 to Georgian wine, mineral water and agriculture product for alleged sanitary reasons] where Georgia used to send more than half of its export before 2006, creates hopes that the foreign trade will be encouraged and Georgian economy may get an additional drive force to develop its export but the effect will not be tangible immediately in 2013. Georgian business needs to restore its niche lost six years ago at Russian market that may take an year in the best case – the reality is that negotiations with Russian side discussing the trade-related details are still on and nobody can say when this market opens its gate up in fact.
Irakli Lekvinadze, an economic analyst and partner of Sales Management Company that provides marketing and consulting service to Georgian mineral water, soft drinks and agriculture product, thinks Russian market is a near prospect as far as potential partners are already on contact for demand on Georgian product do exist at Russian market.
He expects the forecasted USD 2 billion to come to Georgia in 2013 if political situation is not aggravated and business regulatory legislation remains liberal.
According to Muller, against the backdrop of pestering global economic crisis and recession chances to attract investments to Georgia are fewer. Political stability and clear, positive business policy is crucial to this end. He does not expect Russian market to be a big relief if situation in Georgia does not change to the positive: Saakashvili should step down and new government must show due management skills that seem quite incompetent at the moment.
“Two months passed and no palpable changes improving business climate ensued: expensive credits price did not change, investors’ rights and property rights are not protected on the legislative level, and government has not disclosed any clear investment plans and opportunities. Moreover, Georgian Prime Minister Bidzina Ivnishvili, frequently changes his mind and decisions that is a negative signal. New government even lacks PR technologies of which Saakashvili was a master,” Muller said. “May be they have some good plans but nobody knows their details and investors cannot figure out where to put money.”
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