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Rural Georgia: shepherd with waterbuffaloes. Photo: flickr/Henning(i)

Suggested readings

Bendukidze's interview with Russian Forbes in November 2007 (I Am Useful – «Я приношу пользу») (also available in English) focuses mainly on his activities in the government and the results of his reform initiatives in Georgia. He refutes the interviewer's suggestion that Georgia is an agrarian country, saying that "agriculture accounts for 15 percent of Georgia's GDP and this share is diminishing every year," and expressed his expectation that Georgia will become a "service-based economy."

There is little doubt that there have been many improvements since the Rose Revolution. One of the most noticeable and surprising successes concerned the provision of electricity. As the World Bank notes in "Georgia: Poverty Assessment" (2009):

"Electricity and gas services have improved significantly … reforms have sought to address electricity sector debt, improve payment collections, strengthen the monitoring and reporting of electricity services, and diversify supply sources in the gas sector. The government has completed the privatization of assets in power generation and distribution.

The reforms in the electricity and gas sectors have surpassed what was originally envisioned in the program, which aimed at reaching a collection rate of 65 percent and gradually improving service and reducing blackouts. Today nearly all paying customers have electricity service 24 hours a day, 7 days a week, collection rates are above 90 percent, and blackouts are infrequent. Prudent investments over the last several years and significant improvement in the management of electricity units were central to the turnaround of the sector. In addition, the government implemented large tariff increases in 2006, which was a critical step on the road to a financially sustainable energy sector, while well-targeted electricity and gas supplies helped protect the most vulnerable." (p. 24)

In fact, even as critical an observer of the Rose Revolutionaries as Salome Zourabishvili, foreign minister from 2000 to 2005, admits in her book La tragédie Géorgienne ("The Georgian Tragedy") that:

"Concerning electricity progress is also undeniable. During the first two years under Saakasvhili, the problem of lack of electricity, which was always there during the government of Shevardnadse, was first tackled in the capital and then, although with some delay, in the provincial towns and villages."

On basic facts on the Georgian economy and budgets, please see the Ministry of Finance website.

On a broad overview of all reforms and what they have achieved, see UNDP: "Georgia 2008 National Human Development Report: The reforms and Beyond" (2008).

There are critics in Georgia who question the economic impact of the post-2004 reforms. See Vladimer Papava's The Political Economy of Georgia's Rose Revolution (2005):

"Another matter of particular concern is the process of 'deprivatization' of privatized state property, which may drag the country back to its status at the initial stage of its transition to a market economy. Furthermore, the government's new wave of privatization will probably make necessary sometime in the future another round of deprivatization. These initiatives only create the appearance of providing for 'social justice'. Their real purpose is redistributing property for the benefit of the new elite."

Also by Papava: Poverty Reduction Through Private Sector Development in Georgia: Policy, Practice and Perspectives (2009):

"During the Presidential and Parliamentary elections in early 2008, the Government's electoral slogan was 'An Integrated Georgia Without Poverty!' This catch-phrase was later 'fleshed out' by a so-called programme with the same title which was approved by the Parliament of Georgia in late January 2008, when it gave a vote of confidence to a newly appointed government. This document may be labelled as a 'programme' in name only:  it consists of some catch-phrases set forth on a few pages. In this already 'fragile' document, the problem of poverty is mentioned not more than once within the words: 'In the next five years, poverty will be reduced significantly.' … As one can see—and however regrettable it may sound—the Georgian Government did not have any sort of realistic poverty reduction programme in the period following the elections. Moreover, it has not even fully realised what the meaning of poverty is and how it may be addressed."

Also see "the Georgian Economy under Saakashvili" by Irakli Rukhadze and Mark Hauf (2009):

"As the real economy grew, the underground shadow economy was being legalized. Although this was certainly a positive result, it also created an artificial appearance of explosive growth in the overall economy. The government reported that during 2004-2006 the economy grew by annualized 10 percent, although it is not clear how much of this was real economic growth and how much just the result of reporting on previously underground economic activity. Over the same period of time, the State budget grew by 45 percent.

Much of the growth in the economy that Saakashvili government reported was achieved through quick one-time measures, such as State asset sales, government lay-offs and tightening of collection policies. Although productive in the short-run, such measures are not repeatable and offer little prospect for further economic growth. Saakashvili also resorted to extorting so-called 'contributions' to the State budget from businesses and citizens with threats of prosecution for corruption, tax evasion or other charge used to persuade the recalcitrant. While such methods deliver short-run returns to the government coffer, by fundamentally alienating business people, they actually undermine Georgia's long term economic well being."

For information on Georgia's economic development after the Rose Revolution, consult the Georgia section of the EBRD's Transition Report 2009.

It shows the devastating fall in Georgia's GDP in the early 1990's which Georgia has yet to overcome:

Real GDP in Georgia

EBRD underlines a number of improvements that have taken place since 2004. For instance, there was a doubling of domestic credit to the private sector (from 30 percent of the GDP in 2005 to 30 percent of the GDP in 2008).

However, the conflict with Russia has had its repercussions in Georgia as well: "Almost 80 per cent of Georgian firms in BEEPS IV report political instability as an obstacle to their day-to-day operations." (2008/09 Business Environment and Enterprise Performance Survey)

EBRD also describes some of the most important FDI in recent years:

"During 2008 the RAK Investment Authority (an investment vehicle of Ras Al Khaimah of United Arab Emirates) acquired full ownership of the Poti Seaport. The investor also acquired over 3 million square metres of nearby land to construct a new sea port and to establish a FEZ, the first stage of which is expected to be completed by the end of 2009. In April 2009 Egypt's Fresh Electric Company, together with a local company, created the Fresh Georgia company, which aims to establish a FEZ in Kutaisi. Fresh Georgia is expected to invest about US$ 1.2 billion over the next two years and contract 12 manufacturing factories."

April 2010

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