Abkhazia Institute for Social and Economic Research

By Dr. Ramaz Mitaishvili
Glendale, CA
California based director of department for Public Relations and Cultural Diplomacy Dr. Ushangi Rezhinashvili pays another visit to Georgia-and is amazed at the difference 10 years can make. In a report Dr. Rezhinashvili finds value in Georgia cities, hotels, restaurants and wines, notes the wave of new construction, and finds substance behind the pervasive optimism- along with huge investment potential.

He realized about halfway through his recent trip that it had been some time since he was in an emerging-market country. “I have been to over 20 countries over the past 10-15 years, but most of my travels have been to Western Europe and Israel, with the occasional vocational trips to other places”.
It was forcefully brought home to him that in Georgia is more to the emerging-market story than in Israel. There are any number of countries that are seeing robust growth and contributing to the world economy. Dr. Rezhinashvili mention in his report , that when he visited Georgia during Shevrdnadze period mood among those he talked with in Georgia was very pessimistic, and the contrast today was amazing. There are construction cranes everywhere in the 2 cities he visited: Tbilisi, and Batumi. Today, both cities with offices, malls and homes lining highest quality roads they became World-class cities. Tbilisi is a capital of Georgia on a par with Paris or Rome or any major city in terms of facilities, shops and infrastructure. Stores are busy, restaurants are excellent. The hotels he stayed in were modern.
Batumi  is a subtropical jewel on the Black Sea. Again, there was construction everywhere - a green, verdant city of a more than hundred thousands people, with modern roads and great weather. Amazing mountains, blue water harbors, white sand beaches, with wineries nestled in among the mountains and valleys. There are several similar, quite large developments going up in different parts of Batumi. It is very sad that best part of Black Sea- Abkhazia is under sage of criminal clans, and Russian peacekeepers that destroyed economic and infrastructure…
Georgia is among the top countries in the world for ease of doing business. The finding suggests that Georgia is making progress in creating an environment conducive to investment, which the government has identified as key to achieving a 12% growth rate.
The survey ranked 155 countries according to the number of procedures, time and costs involved in: starting a business; dealing with licenses; hiring and firing workers; registering property; getting credit; protection for investors; paying taxes; trading across borders; enforcing contracts; and closing a business.
Economy
Ease of Doing Business Rank37
Starting a Business36
Dealing with Licenses42
Employing Workers6
Registering Property16
Getting Credit48


Overall, Georgia had the highest ease-of-business ranking on the post soviet area.

And it was not just the people he spoke to that were optimistic. Why such confidence? Dr. Rezhinashvili thinks there are several reasons. The economy has been growing at a reported almost 5% a year for the past several years, which is quite strong. They have had 12 consecutive quarters of positive growth.
But the official figures may understate the reality by a significant amount. If you look at the value-added tax receipts, as well as other tax figures, some economists estimate the economy may be growing by 7% or more. Why the difference?
There is a large "informal" economy in Georgia. While much of the income may not be reported, when something is bought and sold in the retail sectors, taxes are collected. And also, difficult to say how much  the stock market has grown for the last three years.
Interestingly, more than 50% of the traffic reported in the tourism growth is from Western Europe, United States and the Middle East. While a lot of the people are vacationers, I think a goodly portion are businessmen and women from all over Europe who look to Georgia as a deal-doing financial centre. Georgia has a quite strong, very competent and growing financial services sector that is a magnet for entrepreneurs from all over former Soviet Union seeking to find capital. Georgia also has a strong entrepreneurial class which is the base for much of the new business and development, not just in Georgia  but in all of post soviet countries. The rest of the world rightly sees Georgia as the place to launch into the rest of Caucasus.
All kinds of sport in Georgia are considered as an economic driver. Popularity of Georgian sportsmen brings fans from around a world. The government is using this to invest in infrastructural projects. They jus recently doubled the size of the airports in Tbilisi and Batumi with total remodeling. Walking past the construction at the Tbilisi airport, you have to be impressed with the size, service, and infrastructure of it. New roads and other forms of infrastructure are being added. New sport arenas, as been reported more than 20 only in Tbilisi, in Upper Abkhazia, in part of South Ossetia, controlled by South Ossetia Provisional Administrative Entity will also be a boost to tourism, already one of the important sectors of the economy. Batumi is becoming an International destination for vacations and conferences. Abkhazia Institute for Social and Economic Research plans to organize in Batumi next year International Neonatal Conference. So,  the growth in tourism has been strong, showing 30% growth last year from 2005. 2006 was a record year.
Dr. Ushangi stayed in a very nice hotel for few nights and was surprised by terrific and uniformly delivered with smiles service.
While the overall crime rate is dropping, it is still far too high. Some rather high-profile crimes of late have resulted in a strong outcry for serious change.
Corruption is an issue, but that is the case in almost every emerging-market country. The high levels of poverty are evident, especially among refuges from Abkhazia. Although employment is growing and more and more of the poor are being brought into the economy, there is still a lot of room for progress.
The telecommunications infrastructure is hampered by a lack of serious competition. Access to the internet is limited in many areas, and it is really slow where it does exist. This will improve in the coming years, but it is a serious handicap to business. There are power shortages and the need for more power-generation plants to keep up with the growth.
But all these areas are going to improve.
Dr. Rezhinashvili saw a lot of opportunity in Georgia  in particular and Caucasus in general. Let's look at one area where there may be more than a little potential in the future.
He thinks there is deep long-term value in Georgian  farmland. Right now, given the nature of US and European subsidies to agriculture, it is hard for developing-world farmers to compete. But that will change in the next decade.
Europe and the US are going to come under intense government budgetary pressure due to the high levels of pension and medical costs they have promised their retiring boomers. Europe is particularly vulnerable.
Quite simply, Europe cannot afford to keep the pension promises they have made and pay for any other normal government expenses without raising taxes. Except that they already have economy-stifling high taxes.
Budgets are going to have to be cut in other areas. At some point, sooner rather than later, agricultural subsidies are going to come under pressure, as politicians must decide where to find the money to pay for the promised pensions and health care. There are more voters who are older and on pensions than there are farmers.
We can count votes, and it is not hard to predict the result. It will be with a lot of fighting, but in the medium run the agricultural subsidies in Europe are going to have to go.
When the writing is clearly on the wall, Europe will start to negotiate on those subsidies, trying to get something for what they will have no choice but to give. Part of that will be to reduce US subsidies as well.
Georgia soon will become a breadbasket for much of surrounding area. As the rest of the world becomes more developed, there will be an increased demand for meat, which means an even bigger demand for feed grains for livestock. The growing use of ethanol is increasing demand for corn, absorbing more of the world's land use for energy corn rather than for food.
The simple fact is that as the world grows more prosperous we are going to need more grain and other foods. Where is the land we are going to need to feed the world? There is an abundance in Georgia, along with the needed water and labor.
And as Georgia upgrade their infrastructure, it will improve the ability of farmers to get their grains to market at profitable levels.
There is much to like about emerging markets. That is where a great deal of the real potential growth in the coming decades will be. And Georgia  will be one of the better stories. If you are not doing business there already, you should ask yourself, why not?
Here are just some of the reasons for doing business in Georgia: