Georgia casts itself as the most ambitious and fastest-growing of the region, but to meet its goals, the country will have to sort out its governance

The Georgian plan for 2020 is all about growth and development—but what else is to be expected of an forward-looking economic strategy? The Caucasian country’s GDP in 2018 was $15.5 billion, according to the World Bank, and the country is expected to grow over the next two years to around $21 billion. The three main spokes of Georgia’s 2020 strategy are:

  1. Private sector competitiveness by cultivating an environment for entrepreneurship and business to thrive, guarded by rational public policy;
  2. Human capital development through reduced un- and underemployment, improved labor condition, better social welfare, and human capital development;
  3. Better access to finance by keeping a strong national bank and continuing to court outside sources, both private capital and larger institutions.

To develop all of these, Georgia will need a stable macroeconomic environment, which in turn requires substantial changes to Georgia’s governance.

The dynamic duo: good governance and the private sector

At the core of Georgia’s plan is desire for stable macroeconomic environment and development of the private sector. Georgia’s plan aims to expand the country’s already successful tourism sector, bring growth to the hydropower industry, modernize the agricultural sector to increase output and market access, and increase transport connectivity and integration. But to guarantee a competitive private sector, it needs to first strengthen its transparency, rule of law, and property rights. State regulation, to be effective, must be above reproach.

Georgia Employment/unemployment (GeoStat via ADB)

Georgia luckily has outside help. Integration with the European Union remained a key aspect of Georgia’s foreign and domestic strategy. Integration is both a means to an end and an end in itself. The EU’s policies on business and government help set framework for Georgia and, in return, offers cooperation and assistance to the country. But deep gaps in the country’s governance remain.

A prescient example is the deep sea port in Anaklia. The The Anaklia Deep Sea Port is an important infrastructure project for Georgia, and seems to tick all the boxes for sustainable development. It effectively showcases the country’s ability to be a transport hub—part of a long-term strategy development—and it sensibly uses Georgia’s geographic position. The deep sea port is also an effective public-private partnership: the Georgian government is investing into the infrastructure of the rail and road, while the port is being developed by a private company consortium. Yet, the seemingly picture-perfect project has been blighted by transparency and governance problems and mired in domestic personality spats. If Georgia wants to project itself as a reliable place for FDI and a flourishing private sector, it needs to focus on ironing out corruption and any whisper of patronage. There are structures in place and willing external actors to measure and enforce Georgia’s progress. The country needs to first take itself seriously if it expects others to do the same.  

Human capital

The poverty in Georgia is still striking. Situated in the center of Tbilisi or on the boardwalk of flashy resort-town Batumi, amidst the bright lights of casinos or new development, one might not notice. But slip out of the urban centers of wealth, and a different picture emerges. The country has made major strides in addressing poverty, but it remains a pervasive issue that has cropped up in politics repeatedly.

Saakashvili’s United National Movement, that worked to liberalize the economy and bring more wealth to Georgia, was successful at stimulating business and commerce, but did little to enrich the majority of the country’s people. A rising tide did not raise all boats, and some Georgians were left sinking or stuck in the mud.

Bidzina Ivanishvili, Georgia’s wealthiest man, paved the country’s roads—literally—and established the Georgian Dream party, which promised to bring wealth to all Georgians, not just a select few. But the close vote of the recent presidential election revealed that while the Georgian Dream is still the most powerful and popular party, its grip on power is less than fully secure. More must be done by way of wealth creation, as the last election demonstrated the influence poverty has over voters.

The government’s plan to tackle poverty is threefold:

  1. Invest in the education system to have better-equipped workers;
  2. Create more jobs;
  3. Involve the population in the economic development process, specifically at the regional level

    Poverty indicators (GeoStat via ADB)

These are reasonable responses, but, as with the government’s ambitious sector expansion plan, the public sector will have to be effective in implementing the program to facilitate efficient development. It will take a combination of programs and sufficient incentives to involve Georgians and show them the benefits of such policies, which might not be apparent for several years. The regional development will be more immediate, as Georgians will be able to see funding for projects allocated to their region put to work for them. But extra money injections could still naturally gravitate to central cities and projects, like Batumi in Adjara, and leaving out villages that need the most investment and work with less profit payoff. The basics need to be accounted for.

Poverty indicators (GeoStat via ADB)

Georgia’s plans for the future (Source: Asian Development Bank)

Finally, some regional projects, especially in hydropower, tourism, and agriculture, can be a double-edge sword for residents, who want the material benefit without any potential relocation or the business of a once-quiet and pristine area. The government and the private sector cooperate to ensure that when it pairs sectoral development with socio-economic development, parts of cultural heritage and human dignity are not left behind.  

External aid is the road to finance

Georgia is still heavily reliant on external aid in foreign direct investment, private and public financing, and debt assistance, to build its economy. At the public level, Georgia has governance and strategic programs with the World Bank and the European Bank for Reconstruction and Development (EBRD). The country relies on cooperation with the Asian Development Bank and the EBRD for special project financing and procurement. In 2017 and 2018, most EBRD projects approved in Georgia were private projects in the power and energy sector, specifically hydro projects. This focus dovetails with the government’s projected plans to become more competitive in the hydro power sector. There is also productive overlap between Georgia’s goals to diversify its sources of finance and the offers by external actors. The foreign business lobby in Georgia has been able to successfully bid for projects the country has put on the table. Foreign involvement brings in more than just capital, it also brings new innovation ideas and perspective on development that benefits Georgian businesses. The soft power gains of cooperation are exponential, and Georgia seems to be using every chance it can to capitalize on the projects on offer. Here, Georgia should stay the course and keep working to expand on what it has.

Gini coefficient (World Bank via ADB)

 

Conclusion

At the heart of Georgia’s economic climb is resilience and a belief it can do better. Georgia believes itself to be the best developed and the fastest-growing country in its region. It is not wrong to claim this, but it needs to back up its claim with real, sustainable policy, starting with its own public sector governance. The country has a lot to work with in its natural resources, location, and, perhaps most important, in its vastly underutilized human capital. The private sector, policy makers, and outside onlookers all recognize this.