Contents · 2013. 8. 5. · public and private organisations including advice and training, developing and reforming legal and regulatory frameworks, institutions and organisations,

GEORGIAN ECONOMIC TRENDS

GEORGIAN ECONOMIC TRENDS – 2000 No.2 1

Contents About Georgian Economic Trends 2 Editorial: Transition, Growth and Convergence 3 1. Summary 4 2. National Accounts and Main Trends 7 3. Government Finance 11 4. Money and Finance 15 5. International Trade and Foreign Economic Relations 20 6. Privatisation 23 7. Employment, Incomes and the Social Safety Net 27 8. The EU-Georgian Relations 32 Calendar of Events 36 Appendix I: Post-Accession to the WTO 39 Appendix II: Trade and Competition – Multilateral Trade Discussions 42 Appendix III: Georgia’s Specific Commitments in Trade in Services A Short Comparison to Other Countries 44 Statistical Appendix 52 Abbreviations 61

About Tacis and GEPLAC Georgian Economic Trends is a publication which is now funded by the Tacis Programme through the Georgian-European Policy and Legal Advice Centre. The Tacis Programme is a European Union Initiative for the New Independent States and Mongolia which fosters the development of harmonious and prosperous economic and political links between the European Union and these partner countries. Tacis does this by providing grant finance for know-how to support the process of transformation to market economies and democratic societies. It is the largest programme of its kind operating in the region, and has launched more than 3,000 projects worth over ECU 4,220 million since its inception in 1991 and through 1999. Tacis works closely with its partner countries and provides know-how from a wide range of public and private organisations including advice and training, developing and reforming legal and regulatory frameworks, institutions and organisations, and setting up partnerships, networks, twinnings and pilot projects. Tacis also cultivates links and lasting relationships between organisations in the partner countries and the European Union to promote understanding of democracy and a market-oriented social and economic system. The Georgian-European Policy and Legal Advice Centre (GEPLAC) was established in 1998 by Tacis in order to support economic and legal reform in Georgia. Activities under GEPLAC’s programme include the production of Georgian Economic Trends and of the Georgian Legal Review, and the provision of economic policy and legal advice to the Georgian Government.

This publication is financed by the European Union’s Tacis Programme, which provides grants finance for know-how to foster the development of market economies and democratic societies in the New Independent States and Mongolia.

ABOUT GEORGIAN ECONOMIC TRENDS

2 GEORGIAN ECONOMIC TRENDS – 2000 No.2

Georgian Economic Trends quarterly publication aims to provide all those interested in the progress of economic reform in Georgia with a review of developments. GET was established in 1995 and is published in Georgian and English. This and previous editions of GET are available on the internet at:

www.geplac.org This edition draws on information from a wide range of government and non-government sources including in particular the State Department for Statistics, the National Bank of Georgia, the United State Social Safety Fund, the Ministry of Finance, the Ministry of Trade, the Ministry of State Property Management, the Minister of Labour and Social Affairs as well as other Government ministries and departments. Wherever possible every care is taken to ensure that data sources are fully acknowledged since without the full co-operation and support of information providers, including regular consultation, it would not be possible to produce this review. The purpose of GET is to offer an independent analytical account of economic trends drawing on information made publicly available. As part of this work, comments and advice are offered on policy and on the collection and dissemination of economic and other information. These are always intended to support the process of economic reform in Georgia and represent the view of the authors and editors only and do not represent any official view of the European Commission, the Tacis Georgian-European Policy and Legal Advice Centre or the Government of Georgia. Readers may quote any information used provided it is properly acknowledged. For further information please contact Veronica Schneider, Georgian Economic Trends at: 42, Kazbegi Ave, Tbilisi 380077

Tel: (995 32) 53 71 40 / 53 71 42 / 53 71 43 53 71 45 / 53 71 46 Tel/Fax: (995 32) 53 71 39 (direct) Fax: (995 32) 53 71 38 E-mail: [email protected]

The following people worked on this edition (in alphabetical order): David Jinjolia Sophie Khmaladze, Erekle Natadze Natalia Kakabadze Paata Khokhobashvili Veronica Schneider Dimitry Kemoklidze Daniel Linotte Irakli Tsereteli Gocha Kereselidze Vakhtang Marsagishvili

EDITORIAL: TRANSITION, GROWTH AND CONVERGENCE


By Daniel Linotte, Chief Economic Adviser, GEPLAC High Expectations The liberalisation process that started after the collapse of the former command economy system led to high and rather enthusiastic expectations on the part of the people living in Central and Eastern Europe. For most countries, the reference was definitely the countries of Western Europe, especially those of the European Union. Thus, the legitimacy of the drastic changes relied largely on the strong belief that these countries would very rapidly catch up with the living standards of the developed countries of the West. Outcomes: Central Europe Versus the NIS Countries Considering growth performances, the most striking finding of a recent study of the Economic Commission for Europe of the United Nations (UNECE) is that “there is no evidence of any catching up by the former Centrally Planned Economies and their successor states… On the contrary, (data reveal) instead evidence of falling behind; the latter is especially pronounced in the successor states of the Soviet Union after 1990”. In other words, the countries of Central Europe that have concluded association agreements with the European Union and that will possibly be included in the next wave of EU enlargement are showing progress, whereas most of the former Soviet Republics are stagnating or growing at a slow pace. In the Georgian case, following the exceptional outcomes of 1996 and 1997 – when the GDP grew at a rate of about 10 per cent – there was also a widespread confusion between a short-term recovery and a long-term trend. Explaining Growth Outcomes According to the UNECE experts, there seems to be no clear-cut explanations for the very different paths followed by the transition economies. The so-called “main stream” explanations insist on the speed of stabilisation, economic reforms and liberalisation. Other studies have given more importance to structures, history, geography and initial conditions. One key-factor that seems to be omitted by UN experts is the content of the agreements concluded between these countries and the EU and the prospects for future EU membership. Mounting Risks and Challenges The split of transition countries between “fast” and “slow” growth groups and regions could eventually be a cause of growing tensions between and within countries that may threaten the overall stability of institutions and relations. It could eventually undermine or at least not facilitate the full implementation of international agreements. Ultimately, it could also lead to negative tendencies in terms of democracy and human rights. In the Georgian case, more actions are required to facilitate business activities and foreign investments. That may compensate for the apparent low level of domestic savings and should have a strong impact on growth. In that respect, Georgia benefits from a unique position – in the Caucasus, between Europe and Central Asia, and as a potential transition place between Russia and the Middle East – that has to be fully exploited. Reference UNECE, Economic Survey of Europe, 2000 No. 1, Ch. 5, “Catching up and Falling Behind: Economic Convergence in Europe”, pp. 155-182.

CHAPTER ONE: SUMMARY


NATIONAL ACCOUNTS AND MAIN TRENDS NATIONAL ACCOUNTS The substantial fall of agricultural production this year hampered the process of economic growth in Georgia. In the first nine months of 2000 Georgia's GDP fell by 0.2 per cent compared to 1999. During the same period, the CPI has increased only by 2.2 per cent, and monthly inflation rate made up 0.2 per cent. The highest monthly inflation rate was recorded in August and in September (1.2 per cent and 1.8 per cent respectively), while in February-July period a slight reduction of consumer prices was observed. It can be explained by the strict monetary policy of the NBG and non-disbursement in full amount of the budgeted allocations of salaries, pensions and other social benefits. The 2000 state budget allocated GEL 133.4 million for state foreign debt servicing, however, over the first nine months of this year, only GEL 56.7 million was disbursed. According to the balance of payments, the trade balance deficit and current account deficit were lower in H1 2000 compared to the corresponding period of 1999. It is the result of sharp expansion of export of goods and non-factor services and stagnation of import. SECTORS OF ECONOMY Bad weather and lasting drought this year significantly damaged agricultural sector. Along with bad weather conditions, one of the main reasons aggravating the slump in agriculture is the non-sufficient allocation of funds from the budget for financing the agriculture servicing spheres. According to the SDS and the Ministry of Agriculture and Food, the estimated loss is expected to be around GEL 450 million. Different countries and international organisations have expressed their readiness to render assistance to Georgia in alleviating the situation created in the agricultural sector. Within the real sector of economy the high growth rate was recorded in industry, transport, trade, hotels and restaurants services, communication, and commercial services. The volume of output has increased both in mining (by 64.8 per cent) and manufacturing industries (16.4 per cent). The cargo turnover in the Georgian sea ports doubled against last year. Over the January-September period, about 3.7 million tonnes of Caspian crude oil was exported from Supsa. The transportation of goods by motorway and railway transport is also increasing. GOVERNMENT FINANCE According to the 2000 State Budget, total revenues in the first half of the year were expected to reach GEL 403.8 million (excluding social contributions from organisations financed by central budget), that is 46.2 per cent of revenue expectations for the entire year. Actual state revenues were received at GEL 273.4 million level. Not all the anticipated external payments were received. Shortfall in the state revenue collection and less than expected foreign support have put a considerable strain on the expenditure side of the budget. By July 1st actual state budget spending was GEL 271.8 million, i.e., 25.5 per cent of the annual target. MONEY AND FINANCE In August, the CPI increased by 1.2. The exchange rate during March - October 2000 was stable, while the NBG actively purchased the USD on TICEX. According to the NBG Council Decision, the level of the reserve requirements decreased to 14 per cent in May 2000. Central Government Deposits in GEL increased gradually and reached GEL 1 million and GEL 1,156 thousand in July and August correspondingly. Meanwhile, the cumulative Government borrowing in June, July and August was much less than total.

SUMMARY


Foreign exchange deposits have increased by GEL 72 thousand since January 2000, while deposits in national currency have increased by GEL 20 thousand and currency outside commercial banks - by GEL 19 thousand. The Ministry of Finance continued to issue T-Bills to finance part of the budget deficit through domestic sources. Total emission of both 28- and 91-day T-Bills during January-October 2000 was GEL 34.3 million. There was a progress in REPO market development. There were 29 deals during May-October 2000 with total volume of GEL 8 million. INTERNATIONAL TRADE As of the end of Q3 2000, Georgia’s trade turnover had increased by USD 149 million in comparison with Q3 1999 and amounted to USD 775 Million. Trade turnover with the CIS countries increased by USD 20 million. At the same time it should be stressed, that trade balance for the first nine months of the year is still negative, and deficit, approximately USD 313 million, is quite a considerable figure, of which USD 59 million falls on trade with the EU countries. Export volume for the first nine months was USD 236 million, while the value of imported goods amounted to USD 539 million. Russia, Turkey and Germany remained the largest trade partners of Georgia PRIVATISATION Privatisation process saw little progress in the second quarter of 2000. While the privatisation of the small enterprises continued to be successful, privatisation of large industrial enterprises by investment tender still remains problematic. It seems that more restructuring is needed before those enterprises become attractive to investors, and the investment conditions set by the tenders are also creating obstacles to successful sales. Privatisation of the major assets of telecommunication sector is planned to be completed at the end of the year, however the amount of work to be done by the financial adviser makes this target quite unrealistic. A restructuring and modernisation strategy for Poti Port has been established, which, if successfully implemented, will improve the operation of the port. EMPLOYMENT, INCOMES AND THE SOCIAL SAFETY NET LABOUR MARKET The labour market situation remains complicated being characterised by the high unemployment and underemployment rates. Hidden and disguised unemployment are widespread and long-term unemployment becomes more and more common. The serious labour problems the households are facing lead to painful declines in their living standards. The number of both hired and self-employed is falling, more and more people join the ranks of the long-term unemployed, are categorised as “discouraged workers”, and fall out of the labour force. The gap between the unemployment rate measured by the ILO ‘strict’ standard and the one measured by the ILO ‘loose’ methodology is growing. Self-employment can still be considered the dominating segment of the labour force and accounts for over half of employment, though its share in both the labour force and total employment is on the downward trend. In absolute terms, however, both hired and self-employment have experienced annual downsizing. SOCIAL SAFETY NET The social policy reform is among top priorities in the country, as it becomes apparent that the existing system proved to be unsustainable. The current social safety net system is largely the heritage of the soviet past and in the conditions of transition economy appears to be ineffective as poverty refuses to

SUMMARY


subside. The pay-as-you-go pension system is not in the position to ensue payment of the extremely low flat rate benefits payable to all the pensioners and the tightly targeted token social benefits are unable to alleviate poverty. However, even these are too high a burden for the current government budget. The fundamental restructuring of the state social protection system is indispensable and should be aimed at creating economically viable, affordable and equitable social safety net, promoting growth. “A Concept of Social Development” presented by the Government, with the support from President, in January and followed by a presidential decree issued in May stipulating the measures to be implemented in accordance with the conceptual basis of the social development are declarations of a long-term commitment to social sector reforms. However, there is still a long way to go before actual results become visible. THE EU-GEORGIAN RELATIONS Relations between the EU and Georgia are developing on the basis of the Partnership and Co-operation Agreement (PCA). The agreement entered into force on 1 July 1999. The PCA covers all spheres of Co-operation except military issues. The main aspects of the EU-Georgian relations are trade, technical assistance and support in resolution of the internal conflicts. During the recent years, Georgia received EC assistance worth about EUR 270 million. The new technical assistance regulations have been recently adopted in the EU. These regulations cover 2000-2006 and provide financial assistance worth EUR 3.136 million through the Tacis projects. The first sub-committee meeting on trade and economic issues of the European Communities (EC) and its Member States and Georgia was held on 14 July 2000 in Tbilisi. The objective of the meeting was to discuss macro-economic developments in Georgia, trade, business and investment issues. Another important event in the EU-Georgian relations was the second meeting of the EU-Georgian Co-operation Council, held in Luxembourg on 10 October 2000. The meeting examined democracy, economic, legislation issues and set up the priorities for future co-operation.

CHAPTER TWO: NATIONAL ACCOUNTS AND MAIN TRENDS


GDP AND MAIN TRENDS The substantial fall in agricultural production in 2000 induced by adverse weather conditions hampered the process of economic growth in Georgia. According to the preliminary SDS estimates, GDP totalled GEL 4.4 billion in the first 9 months of 2000. In real terms it was 0.2 per cent lower than during the corresponding period of 1999, taking into account price changes. In Georgia, because of seasonal factors, usually GDP is higher in the second and third quarter than in the first quarter of the year. In Q2 and Q3 2000, valued added of GEL 1.6 billion and GEL 1.5 billion respectively was produced, compared to GEL 1.3 billion in Q1. However, the growth rate as of end of Q1 2000 was the highest - at 4.4 per cent, as of end of Q2 it was 2.8 per cent, and as of the end of Q3 - 0.2 per cent. Within the real sector of economy the high growth rate was recorded in industry, transport, trade, hotels and restaurants services, communication, and commercial services. The exchange rates of GEL against USD and RUR were quite stable this year, although to the end of September GEL appreciated respectively by 3 per cent against USD and by 2 per cent against RUR. In February-July the consumer price index was declining on average by 0.1-0.3 per cent per month, however, in August and September prices grew, and inflation rate was respectively 1.2 per cent and 1.8 per cent. Inflation rate as of the end of Q3 2000 reached 2.2 per cent and average monthly rate was only 0.2 per cent. The deflation of prices in H1 can be explained by the strict monetary policy of the NBG and non-disbursement in full amount of the budgeted allocations of salaries, pensions and social benefits that adversely affected the purchasing power of population. Despite the low inflation rate, the first eight months saw a certain price increase on some products: bread products (8.4 per cent), sugar, tea, coffee and spices (5.6 per cent) and tobacco products (3.4 per cent). At the same time, prices of vegetable oil and fats, dairy products and meat, fruits and vegetables decreased. Table 2.1: Real GDP changes: January-September 2000 (January-September 1999=100)

Sector January-September Share in September-2000 vs. January- January 2000September 1999

Agriculture, fishing 81.4 24.7Industry 104.3 12.3Construction 101.9 3.5Trade 111.7 13Hotel and restaurants 115.6 2.4Transport 113.3 11.3Communications 113.6 2.5Public administration, defence 92.6 3Education 102.8 1.9Health care 112.2 3.8Financial mediation 108.4 1.5Net taxes 102 5.5GDP 99.8 100GDP deflator 108.3 ----

Source: State Department for Statistics

NATIONAL ACCOUNTS AND MAIN TRENDS


SECTORS OF ECONOMY Despite some difficulties related to structural reforms of the economy, the production growth rate in the industrial sector was on the upward trend. According to the SDS estimates, GEL 1,323 million worth products was produced in industrial sector (including shadow economy) in the first nine months of 2000, i.e., 7.2 per cent more than in the corresponding period of 1999. Substantial growth of production was observed both in mining industry (by 64.8 per cent) and manufacturing (16.4 percent). The highest growth rates were recorded in the following sub-sectors: copper mining, ferrous metallurgy, production of leather articles and footwear, trucks, electronic products, and spring water; that might be explained by the low initial level of output in these branches. The extraction of oil, natural gas and coal significantly increased in H1 2000. If crude oil and associated gas are used in local production or exported, there is no demand on Georgian market. Consequently, coal mining output compared to 1999 declined in Q3, while oil and gas production is growing. Despite certain signs of recovery in industrial sector this year, the country’s industrial potential is not being used at its full capacity. Approximately, 20 per cent of industrial enterprises stand idle, the main reason being the lack of new capital investments, poor management, interrupted electricity supply and non-fair competition. Bad weather and lasting drought this year significantly damaged agricultural sector. According to the SDS and the Ministry of Agriculture and Food, the estimated loss is expected to be around GEL 450 million. The drought especially affected the regions of Eastern Georgia. In particular, about 400 thousand hectares of agricultural lands, including 155 thousand hectares of grain and 58.6 thousand hectares of sunflower was damaged. As a result, the yield of grain per hectare halved compared to the last year and amounted to 900-1,000 kg on average, and the harvest of sunflower was almost entirely lost in many areas. Along with bad weather conditions, one of the main reasons aggravating the slump in agriculture is the non-sufficient allocation of funds from the budget for financing the agriculture servicing spheres. In particular, only 14.7 per cent of the allocated sum was disbursed for melioration system management needs in H1 2000, and, consequently, the significant areas of arable land remained without irrigation. The financing of the veterinary and plant protection departments is also insufficient. Different countries (USA, Turkey, Germany, Italy, Greece) and international organisations (FAO, ECHO) have expressed their readiness to render assistance to Georgia in overcoming the consequences of the drought. The USA government has already allocated a grant of USD 2.575 million for assistance to farmers. USA, Switzerland, Germany and FAO have allocated around USD 1.8 million for purchase of wheat seeds for autumn seasonal works. FAO is planned to co-ordinate this activity. Tea production also experienced substantial fall this year. 24 thousand tonnes of tealeaf was picked and delivered for processing by 10th October, i.e., by 34.5 thousand tonnes less than in corresponding period last year. Production of packaged tea also reduced by 23 per cent. Poor situation in tea production is due to financial difficulties of tea processing enterprises. In total, the volume of value added in agriculture decreased by 18.5 per cent compared with 1999 (see Table 2.1). Transport and communications is one of the fast growing sectors of Georgia's economy. In the first nine months of 2000, railway transported 8.6 million tonnes of cargo, that is by 28 per cent more than in the corresponding period last year. The transportation of goods by motorway transport increased by 12.5 per cent and the turnover - by 11.2 per cent. The performance of seaports (Poti, Batumi, Supsa) also substantially improved; the cargo turnover in the ports doubled against last year. 30 tankers of Caspian crude oil were loaded in Supsa by 5th October this year. However, air transport experiences decline, one of the main reasons being outdated fleet of Georgian air carriers.



Value added in communication sector amounted to about GEL 110 million in the first nine months of 2000 (13.6 per cent more compared to the same period last year). The number of subscribers of mobile telephone operator networks grew substantially. The turnover of retail trade, hotels and restaurants amounted to GEL 824 million in H1 2000, that is about 13 per cent more than the in the corresponding period last year. However, this indicator only partially reflects the revenue obtained. According to the estimates of SDS, the real turnover of retail trade and restaurants exceeds the recorded one 2.5-3 times. FOREIGN DEBT According to the Ministry of Finance, the total amount of state foreign debt of Georgia amounted to USD 1,490 million as of the 30th September 2000. The main creditors of Georgia are the IMF (USD 283 million), the World Bank (USD 339.1 million), the EU (USD 88.5 million), Turkmenistan (USD 342.8 million), Russia (USD 179.2 million), Austria (USD 69.5 million), Turkey (USD 54.3 million), and USA (USD 39.6 million). On top of that, there are the credits of KFW (USD 40.2 million) and the EBRD (USD 31.2 million), that were allocated for financing different projects and are guaranteed by the state. The 2000 state budget allocated GEL 133.4 million for foreign debt servicing. However, over the first nine months of this year, only GEL 56.7 million was disbursed, of which GEL 2.6 million was used for payment of the principal amount of debts and the rest for payment of interests. BALANCE OF PAYMENTS Table 2.2: Balance of payments H1 2000 and 1999 (USD million)

2000 1999Q 1 Q 2 Q 1 Q 2

Current account Balance -57.7 -26.1 -67.5 -58Goods -117.3 -80.1 -154.1 -142.5 Credit 85 127.7 52.2 75.5 Debit -202.3 -207.8 -206.4 -218Services 17.3 10.3 -1.3 5.7 Credit 61.3 60.4 46.5 63.2 Debit -44 -50 -47.8 -57.5Revenues 5.9 11.4 30.6 32 Credits 18.3 24 42.6 45.2 Debits -12.4 -12.6 -12 -13.2Current transfers 36.3 32.1 57.3 46.7 Credit 40.5 38.1 63.3 56.2 Debit -4.1 -6 -6 -7.1Capital and Financial account Balance 22 87.8 89.3 89.1Capital account -1.69 -1.78 -1.69 -1.78 Credit 0 0 0 0 Debit -1.69 -1.78 -1.69 -1.78Financial account 23.7 89.6 91 90.9FDIs 21.2 39.9 37.3 43.2 Credit 21.2 39.9 37.5 43.4 Debit --- --- -0.1 -0.2Portfolio investments -0.2 0 ---- 0Other investments -6.5 36.6 34.8 38.6

Source: State Department for Statistics



According to the SDS data, the trade balance deficit and the current account deficit were lower in H1 2000 compared to the corresponding period of 1999. It might be explained by the substantial rise of export of goods and services this year. Exports of goods in H1 2000 amounted to USD 212.2 million, which is the highest indicator for the first half of the year since 1994. Improvement of the balance of services account is prompted by the increased revenues from non-factor services, especially transport and communications. While export experiences revival, import undergoes stagnation, which is due to the reduced sources of financing. In H1 2000, FDIs amounted to only USD 61.1 million (24 per cent less than the previous year). Moreover, the tendency of reduction of transfers by Georgian migrants working abroad (caused by the Russian financial crises of August 1998) still persists. Table 2.3: Transfers of Georgian workers from abroad H1 2000, 1998 - 2000 (USD million)

H1 1998 H1 1999 H1 2000 Compensation of employees* 117.5 66.5 42.4 Worker remittances** 71.2 48.9 42.1

Source: State Department for Statistics * Repatriation of remuneration of short-term workers abroad ** Transfers of long-term workers

CHAPTER THREE: GOVERNMENT FINANCE


According to the 2000 State Budget, total revenues in the first half of the year were expected to reach GEL 403.8 million (excluding social contributions from organisations financed by central budget), that is 46.2 per cent of revenue expectations for the entire year. Actual state revenues were received at GEL 273.4 million level. Not all the anticipated external payments were received. Shortfall in the state revenue collection and less than expected foreign support have put a considerable strain on the expenditure side of the budget. By July 1st actual state budget spending was GEL 271.8 million, i.e., 25.5 per cent of the annual target. GOVERNMENT REVENUE According to the 2000 State Budget, total revenues in the first half of the year were expected to reach GEL 403.8 million (excluding social contributions from organisations financed by the central budget), that is 46.2 per cent of revenue expectations for the year. GEL 273.4 million was actually received by the central budget. The figure is about 8-9 per cent below the actual execution of two previous years. Adjusted for about 20 per cent inflation between 1998 and 1999 and 2.8 per cent inflation between the first 6 months of 1999 and 2000, the picture looks even worse and indicates at a deep budgetary crisis. It is notable that the government failed to get external grants of GEL 35 million envisaged by the initial budget. However, even if these funds were received, budget execution level would be only 74 per cent of the target. Tax revenues for the H1 2000 were set at GEL 261.9 million, about 45.8 per cent of the annual target. Actual tax receipts were GEL 195.4 million that is 74.6 per cent of the target (excluding amounts payable to the central budget but unlawfully retained at the local level and amounts retained by the State Tax Service for financing the ongoing administrative reform). Figure 3.1: State Budget Revenue. June 1999 – June 2000

55.5 54.041.1

51.437.9

44

77.3

34.543.2 45 44.1

59.547.2

0

20

40

60

80

100

VI VII VIII IX X XI XII I II III IV V VI

GEL

milli

on

Revenue Trendline

Source: State Department for Statistics Note: Revenue is presented excluding external grants and capital revenue Income tax was collected at 85 per cent of the target; GEL 17.2 million was received by the state budget. The main reason for the shortfall is unpaid state salaries that account for GEL 9 million payable to the budget as income tax.

GOVERNMENT FINANCE


Collection of profit in H1 2000 was remarkably good compared to the planned figure. GEL 14.5 million was received, that is GEL 5.7 million more than the target. However, there is hardly any reason for optimism, as planned and actual figures for profit tax receipts are too low for a country with GDP of over GEL 5 billion. The main part of H1 profit tax receipts was paid by enterprises from 1999 profits. The state budget received GEL 115.5 million as VAT, i.e., 91.7 per cent of the target. The figure is GEL 11 million higher compared to the corresponding period of the previous year. GEL 72 million was collected on domestic goods and services (98.7 per cent of the target) and GEL 43.4 million on imports (82.1 per cent of the target). VAT base was affected by USD 60 million (about GEL 120 million) exports increase taxable by zero rate. However, reserves for VAT base expansion in informal economy are significant. Government is undertaking reform of VAT invoicing standards aimed at improving VAT control. Excise revenues were remarkably low at 38.4 per cent of the target. GEL 33.6 million was received, i.e., GEL 20 million less compared to 1999 performance. GEL 4.5 million (47.6 per cent of the target) comes from domestic excise goods and GEL 29.1 million (37.3 per cent of the target) from imports. Customs duties were collected in line with VAT on imports. GEL 14.6 million received account for 81.3 per cent of the planned figure. Non-tax revenues were collected at GEL 9.6 million level, that is 61 per cent of the planned figure. Of this amount GEL 1 million was received as fee for business licences, GEL 1.4 million as dividends from state owned shares, and only GEL 125 thousand was repaid on state credits to various enterprises. Excise revenues Georgia’s budget largely depends on revenues from main excise products (oil products, cigarettes and alcohol). 41.3 per cent of initial 2000 budget revenues comes on VAT, excise duty and customs duty on these products. Revenues from oil products were decreasing steadily over the last two years without any evidence of reduced consumption. Registered imports of oil products were 4 times less compared to 1998 statistics. It seems that the main part of oil product imports is illegal. In H 1 2000 the state budget received GEL 25 million from oil products against GEL 58.6 million planned while the corresponding figures for 1998 and 1999 were GEL 37.5 million and GEL 33.5 million respectively. Administration of taxes on tobacco products was remarkably bad with 29.6 per cent performance. Instead of the planned GEL 51.8 million of excise tax on tobacco products, the state received only GEL 15.3 million. The planned and actual figures for domestic and imported tobacco taxation are provided in the table below. Table 3.1: Revenues from tobacco taxation (GEL million)

Planned Actual Excise duty on domestic tobacco products 6.2 0.2 Excise duty on imported tobacco products 45.6 15.1 Total 51.8 15.3

Source: Ministry of Finance Sales of excise stamps to importers were 4.8 times lower compared to the corresponding period of 1999. The Ministry of Finance suggests that in 1999 importers, in expectation of excise rates growth,

GOVERNMENT FINANCE


purchased excise stamps in advance for 1.5 months. Besides, the Ministry of Finance estimates that the actual consumption of imported tobacco is 2.1-2.3 times higher compared to legal imports. Excise tax on alcohol was collected at 71.8 per cent and the state received GEL 2.5 million. Shortfall in collection of taxes on main excise products was GEL 70.8 million and accounted for 79.4 per cent of the state budget deficit. Special State Funds In H1 2000 revenues of special state funds were GEL 68.4 million, i.e., 25 per cent below the target. The United State Social Safety Fund received GEL 53.9 million (excluding social tax revenues from the budgetary salaries) that is 84 per cent of the target; the Employment Fund received GEL 1.9 million (81 per cent of the target). The above figures do not cover revenues received by the respective funds of Achara region, which according to the law, were spent by local authorities. Besides, the initial budget envisaged receiving GEL 21.2 million of social tax revenue from budgetary organisations. Due to regular non-payments of salaries only GEL 9 million (42 per cent of the target) was received. The Roads Fund received GEL 12.6 million that is only a half of the expected amount. The main reason for the shortfall was extremely low performance in collection of excise tax on oil products. The initial budget envisaged GEL 11.1 million payable to the Roads Fund from this source. Instead the fund received only GEL 3.8 million. GOVERNMENT EXPENDITURE Shortfall in the state revenue collection and less than expected foreign support have put a considerable strain on the expenditure side of the budget. Budgetary arrears retained from previous years did also exert a significant pressure on the 2000 budget. State budget 2000 expenditure side was set at GEL 1047.2 million. By July the 1st actual state budget spending was GEL 271.8 million that is 25.5 per cent of the target. State debt servicing, both domestic and external, accounts for a large share of H1 2000 spending. GEL 45.8 million was paid as interest on NBG loans; that is 50 per cent of the annual target. The annual target for external debt servicing was set at GEL 172.4 million. Actual payments in H1 were GEL 30.3 million, 17.6 per cent of the annual target. Interest payments on the World Bank loans in general were in line with the agreed schedule. GEL 2.6 million was paid, i.e., 37.7 per cent of the budgeted amount. Out of GEL 70 million envisaged for servicing of the restructured external debt, GEL 24.7 million was paid in the first six months of 2000. There were no principal payments for foreign debt in H1. According to the agreed schedule, GEL 2.9 million was paid for the EU credit servicing. The rough economic category breakdown of the central budget expenditure in H1 2000 is presented below. Salaries were financed at GEL 22.1 million; payments to the United State Social Safety Fund (both transfers from the state budget and social tax payments from employers) were GEL 4 million; official business trips abroad were financed at GEL 2.4 million. Subsidies and transfers (GEL 91.5 million) were executed at 33.9 per cent of the annual target, of which GEL 17.8 million comes on IDP benefits and GEL 12.7 million on current transfers to lower level budgets (mainly for teachers` salaries and various social benefits). The United State Social Safety Fund was financed below the target; only GEL 9.6 million was transferred from the central budget. GEL 3.9 million was transferred to the State Medical Insurance Company; GEL 7.5 million was spent on military pensions. GEL 17.7 million was paid for electricity supply to Abkhazia and Samachablo regions that are not controlled by the Georgian government. Capital spending remains low and accounts for

GOVERNMENT FINANCE


GEL 2.4 million in H1 2000. World Bank investment projects were financed at GEL 15.2 million; the Georgian side co-financing for these projects was GEL 0.73 million. GEL 4 million was spent from special presidential and reserve funds for financing of urgent activities. Cash disbursements made for the category “other goods and services” were GEL 40.4 million. Of this amount GEL 2.7 million was arrested at the central treasury. This measure was prompted by the courts’ decision to transfer the money to repay the debt of the budgetary organisations to the enterprises that have provided them with goods and services. Another GEL 4 million was paid for electricity and water supply and GEL 4.2 million for transport maintenance. GEL 21.2 million was spent under “other expenditures” heading. Main spending categories were Georgian diplomatic corps maintenance (GEL 5.6 million) and subsidies for IDPs (GEL 6.1 million). Table 3.2: Central budget expenditures, functional category breakdown, Q2 2000 (GEL thousand)

Category Actual expenditure Administration 16,881 Defense 4,415 Law and Order 11,365 Education 6,657 Health Care 3,854 Social Security* 20,220 Housing and Communal Services 869 Culture, Sport and Religion 6,393 Energy and Heating 14,033 Agriculture, Forestry, Hunting and Fishing 1,080 Construction, Mining and Recycling 55 Transport and Communication* 1,239 Other Economic Activities 533 Other Expenditures 59,537 Total Central Budget Expenditure* 147,131

* Expenditures are presented excluding transfers from central budget Source: Ministry of Finance STATE BUDGET DEFICIT FINANCING In H1 2000 the state budget deficit mainly was financed by domestic sources. Borrowing from NBG made up GEL 45.1 million comprised of GEL 19.2 million short-term and GEL 25.9 million long-term credits. GEL 4.1 million was collected as a result of selling T-bills. Under capital revenues heading state received GEL 5.8 million instead of planned GEL 103 million. GEL 15.2 million of World Bank investment loans were disbursed in H1 2000. These funds were transferred directly to the accounts of the programme implementation units. From monetarisation of GEL 18 million commodity credit from the US government, GEL 4.9 million was received in H1 2000.

CHAPTER FOUR: MONEY AND FINANCE


According to the State Department for Statistics data, there was a seasonal decrease in prices during April - July 2000. In August, the CPI increased by 1.2. It seems that annual inflation level will not exceed the planned 8 per cent. The exchange rate during March - October 2000 was stable, while the NBG actively purchased the USD on TICEX. There were T-Bills and REPO auctions on the money market as well as 7- and 28-day credit auctions. All deals on the money market were short term. The weakness of the lari as a means of investment is the serious problem for medium term money market development. At the same time, the deposit dollarisation ratio was high (around 80 per cent), that indicated at the weakness of the national currency as a means of savings of individuals and legal persons. Volume of the foreign currency deposits increased 3.5 times more than that of deposits in lari during March-August. According to the NBG Council Decision, the level of the reserve requirements decreased to 14 per cent in May 2000. DOMESTIC INFLATION The main guarantee of economic stability in 2000 is the tight monetary policy and annual inflation of 8 per cent, set up by the ”Main Trends on Monetary and Foreign Exchange Policy for 2000”. From February to July deflation took place. After the decline in February and March, the CPI continued falling, though only slightly. According to the State Department for Statistics data, in April it fell by 0.2 per cent, in May by 0.1 per cent, and in June and July - by 0.3 per cent. In August, due to increase in prices on vegetables, the CPI grew by 1.2 per cent. Table 4.1: Urban and Consumer Price Index and Inflation (December 1998 = 100)

Period Price inde x

Inflation Rate (per cent)

(i) (ii)from from sam e

previous period inperiod previous year

2000 Jan 111.30 0.40 0.40Feb 109.30 -2.00 0.20M ar 109.20 -0.10 0.10Apr 109.00 -0.20 -2.23M ay 108.90 -0.10 -0.52June 108.60 -0.30 0.76July 108.30 -0.30 2.76Aug 109.50 1.20 3.97

Source: GET calculations based on data provided by the State Department for Statistics CREDIT TO THE GOVERNMENT The Central Government Deposits in GEL increased gradually and reached GEL 1 million and GEL 1,156 thousand in July and August correspondingly. Meanwhile, the cumulative Government borrowings in June, July and August were much less than total Government deposits. There were two

MONEY AND FINANCE


reasons for increase in Government Deposits: certain increase in budget revenues and change of the mechanism of the budget revenue distribution. Previously, the MoF distributed money as soon as they were received. Now, it happens only once a week. As a result, by the end of June, July and August the Central Government Deposits exceeded the cumulative borrowing. Thus, the Net Claims on Central Government in June, July and August 2000 was negative. (See the Table below). Table 4.2: Central Government Loans and Deposits with the Banking System (GEL thousands)

2000Jan Feb M ar Apr M ay Jun Jul Aug

Net Claim s on Central Governm ent 523 098 404 261 256 894 135 061 12 190 -162 480 -324 759 -469 603

Central Government Borrow ing f rom NBG 642 402 645 902 656 012 664 862 668 862 685 042 696 177 699 267

Central Government Deposits 119 304 241 641 399 118 529 801 656 673 847 522 1 020 936 1 168 869 Central Government Deposits at NBG in GEL 106 987 229 494 377 877 516 540 643 402 830 410 1 006 343 1 156 088 Central Government Deposits at NBG in foreign currency 1 955 2 543 8 617 2 802 2 929 5 271 4 774 2 788 Central Government Deposits at commercial banks 10 362 9 605 12 624 10 459 10 342 11 841 9 819 9 993

Source: National Bank of Georgia MONEY SUPPLY AND MONETARY RATIOS Foreign exchange deposits have increased by GEL 72 thousand since January 2000, while deposits in national currency have increased by GEL 20 thousand and currency outside commercial banks - by GEL 19 thousand. Figure 4.1: Money Supply

0

100 000

200 000

300 000

400 000

500 000

Dec Jan2000

Feb M ar Apr May Jun Jul Aug

GEL

thou

sand

Foreigh CurrencyDepos its

Depos its in Lari

Corrency Outs ideC/Banks

M 2

M 0

Source: National Bank of Georgia The change of obligatory size of required reserves influenced the required reserves to commercial banks' deposit liabilities ratio. It fell from 15.3 to 12.7 per cent. Total reserves ratio fell from 33.7 per cent in January to 25 per cent in August. It could be explained by the shortage of the lari liquidity on the market and also some progress in development of the financial market. Commercial banks use money on their correspondent accounts at the NBG to buy T-Bills. The deposit dollarisation ratio was around 80 per cent reflecting weakness of the lari as a means of savings. M2 money multiplier was still less than 1, while M3 money multiplier showed the upward trend.

MONEY AND FINANCE


Table 4.3: Monetary Ratios 2000

Jan Fe b M ar Apr M ay Jun Jul AugRequired reserves/ CBs Deposit Liabilities % 15.1 15.3 15.6 15.5 13.8 13.3 12.4 12.7CBs Correspondent A /Cs in NBG/CBs Deposit Liabilities % 9.9 8.5 8.6 4.8 5.8 5.3 6.2 6.4Cash in CBs/ CBs Deposit Liabilities % 8.6 5.9 7.2 5.9 6.3 6.0 4.9 5.9Total CBs Reserves/ CBs Deposit Liabilities % 33.7 29.8 31.4 26.3 25.9 24.6 23.5 25.0Dollarisation Ratio % 78.6 76.7 76.5 80.9 80.0 81.2 79.1 78.7Money Multiplier (M2) 0.91 0.95 0.94 0.98 0.95 0.95 0.98 0.97Money Multiplier (M3) 1.46 1.52 1.49 1.59 1.61 1.63 1.64 1.65

Source: GET calculations based on data provided by National Bank of Georgia

REQUIRED RESERVES According to the NBG Council Decision No.21 of May 12th 2000, commercial banks’ reserve requirements were reduced from 16 to 14 per cent. The mechanism of reserve requirements is the only guarantee of commercial banks’ clients’ deposits. Also this is one of the instruments of money supply regulation on the market. Reserve requirements is acknowledged as more administrative measure, rather than a market instrument. Meanwhile, the previously existed substitution of the 2 per cent of reserve requirements by T-Bills was abolished. BANKING REFORM The NBG President Order No.227 of August 9th 2000 approved the Manual of CAEL System of Outside Banking Supervision. In previous GET editions we mentioned the existing CAMEL system of commercial banks activity assessment that was created according to the Basel Committee standards. Analysis of bank’s capital includes capital adequacy assessment, structure of bank’s equity and bank’s level of capitalisation. Analysis of bank’s assets includes structure, risk and profitability of bank’s assets assessment. Assessment of bank’s earning includes the source of earning, changes in earnings and its effect on the budget of the bank. Liquidity assessment focuses on the issue of the bank’s ability to cover all its liabilities. Currently, the CAEL system assesses commercial banks financial situation that includes commercial banks’ capital, assets, earnings and liquidity. The results of CAEL assessment should include analysis of financial situation, activity and risk management assessment of commercial banks. The special rating of commercial banks is to be created on the basis of CAEL system assessment and consists of 5 categories. The 3rd, 4th and 5th category’s banks are problematic ones. T-BILLS MARKET The MoF continued to issue T-Bills to finance part of the budget deficit by domestic sources. Since January 2000, the total emission of both 28- and 91-day T-bills was GEL 34.3 million. The range of fluctuation of T-Bills interest rates was wide. The maximum annual weighted average rate for 28-day T-Bills was 31.17 per cent on June 21 and minimum 9.6 per cent on April 5. 28-day auctions were characterised by existing demand that usually exceeded the volume of emissions. However, the demand for 91-day T-Bills was not high. There were only two 91-day auctions in May and June 2000, with interest rates of 10.76 per cent and 38.63 per cent. The low volume of 91-day T-Bills is related to the exchange rate risk since there is investment in national currency. The fact of low credibility of lari as the means of investment plays a negative role in domestic government securities market. Actually, the same situation is with the credit auctions, where there is now demand for 60- and 90-day credits. There is a progress in REPO market development. There were 29 deals during May-October 2000 with the total volume of GEL 8 million. The maturity of REPO contracts was from 7 to 10 days, and

MONEY AND FINANCE


interest rates fluctuated between 9 and 18 per cent. The total profitability of REPO operations for commercial banks was GEL 34 thousand. CREDIT AUCTIONS The NBG started to intervene with small amounts on 7- and 30-day credit auctions having the goal to maintain low interest rates. There was no supply on 60- and 90-day credit auctions. The volume of supply on 7-day credit auctions showed the upward trend and decrease in interest rates. In August, the average interest rate was 14 per cent and in October 8.2 per cent. In June and July, the NBG sold GEL 200 thousand at credit auctions to regulate interest rates at the level of 18 and 17 per cents. The volume of supply on 30-day credit auctions also increased, and interest rates fell from 29 per cent in January to 9.4 per cent in October 2000. The NBG also intervened twice (in June and August) with GEL 200 thousand and GEL 359 thousand to maintain the interest rate level. EXCHANGE RATE October 25th 2000 was the 5th anniversary of introduction of the lari. Notwithstanding the change of a managed float exchange rate regime for a free float regime, the exchange rate of the lari remained stable during 5 years excluding the end of 1998. Since its introduction and till 1998 the stability of the exchange rate of the lari was maintained through the NBG's interventions (selling the USD from its international reserves). Meanwhile, the NBG's international reserves were replenished from the IMF's financial support programs. The situation changed at the end of 1998. Domestic fiscal crisis and economic crisis in Russia (the biggest trade partner of Georgia) had negative effect on the lari's nominal exchange rate. To maintain the stability of the national currency within the managed float foreign exchange regime, the NBG had to sell substantial part of its international reserves in a very short period of time (See GET No.1, 1999). In January 1999, the managed float foreign exchange regime was changed with a free float regime to let market regulate the exchange rate. As the figure below shows, the market nominal exchange rate of the lari was stable from October 1995 till September 1998. Then, there was a sharp depreciation of GEL/USD exchange rate in Q4 1999. In the beginning of 1999, the GEL/USD exchange rate appreciated and stabilised at the level of around GEL/USD 2. The stability of the nominal exchange rate of the lari is the basis for the low inflation and, consequently, the stability of the economy within the existing budgetary problems.

MONEY AND FINANCE


Figure 4.2: Nominal Monthly Market Average Exchange Rate Since Introduction in October 1995

0

0.5

1

1.5

2

2.5

Oct

-95

Jan-

96 Apr

Jul

Oct

Jan-

97 Apr

Jul

Oct

Jan-

98 Apr

Jul

Oct

Jan-

99 Apr

Jul

Oct

Jan-

00 Apr

Jul

Oct

GEL

/USD

Source: GET calculations based on data provided by National Bank of Georgia In real terms, lari depreciated in April against USD, appreciated slightly in May and June, depreciated in July, and slightly appreciated in August. GEL/RUR real exchange rate gradually depreciated in April-August, 2000. Figure 4.2: Real Exchange Rate of the Lari

0

10

20

30

40

50

60

70

80

90

J 99 F M A M J J A S O N D J 00 F M A M J J A

Dec

embe

r 199

4 =

100

G E L/US D

G E L/RUR

Source: GET calculations based on data provided by National Bank of Georgia

CHAPTER FIVE: INTERNATIONAL TRADE AND FOREIGN ECONOMIC

RELATIONS


Georgia, being the member of WTO, tries to deepen its economic relations and increase the level of economic integration with the rest of the world. Taking into account more than USD 1.6 billion external debt of the country and considering exports as one of the main sources of foreign currency income, development of international trade becomes very important for Georgia. As of the end of Q3 2000, Georgia’s trade turnover had increased by USD 149 million in comparison with Q3 1999 and amounted to USD 775 million. Trade turnover with CIS countries has increased by USD 20 million. At the same time it should be stressed, that trade balance for the first nine months of the year 2000 is still negative, and deficit, approximately USD 313 million, is quite a considerable figure, out of which USD 59 million falls on trade with EU countries. Russia, Turkey and Germany remain the largest trade partners of Georgia (see Table 6.1). Table 5.1: International Trade Turnover and Ten Main Trade Partner Countries, Q1-Q3 2000 (USD millions, per cent)

International Trade Turnover Import Export Trade Turnover USD million Per cent USD million Per cent USD million Per cent Total 539 100 236 100 775 100 Main partner countries (total) 415 76.9 184 77.9 599 77.2 Azerbaijan 31 5.7 16 6.7 47 6 Germany 39 7.2 27 11.4 66 8.5 Italy 13 2.4 7 2.9 20 2.5 Russia 73 13.5 48 20.3 121 15.6 Sweden 9 1.6 0 0.04 9 1.1 Switzerland 18 3.3 6 2.5 24 3 Turkey 68 12.6 56 23.7 124 16 Ukraine 26 4.8 14 5.9 40 5.1 UK 13 2.4 7 2.9 20 2.5 USA 23 4.2 3 1.2 26 3.3 Others 166 30 69 29.2 235 30.3

Source: Data from the State Department for Statistics In the above-mentioned period Georgia had negative trade balance with 78 countries (USD 311 million) and positive – with 25 countries (more than USD 1 million positive trade balance – with Armenia, Lithuania and Congo). Figure 6.1: Exports, imports and trade balance, Q1 – Q3 1995 - 2000 (USD thousands)

-300

-250

-200

-150

-100

-50

0

50

100

150

1995Q1

Q3 1996Q1

Q3 1997Q1

Q3 1998Q1

Q3 1999Q1

Q3 2000Q1

Q3

Trade Balance export import

Source: Data from the State Department for Statistics

INTERNATIONAL TRADE AND FOREIGN ECONOMIC RELATIONS


Destination and Structure of Exports The CIS remains the main destination for Georgia's exports. Export to the CIS keeps increasing since 1997, while import reduces. As for the EU countries, Georgia's export is increasing, though it still has not established itself enough on the EU market. The list of Georgia’s export items is quite typical for the “third world” countries. Export of planes, made in Georgia, could be considered as one of the exceptions from the traditional export products, and this trend in the country’s export should be most welcomed. The share of scrap black metals, scrap aluminium, precious metals, ore and concentrates was still very significant in the first nine months of the current year. For the same period, export of wine and nuts amounted to USD 19 million and USD 13 million respectively. Table 5.2: Structure of exports, Q1-Q3 2000 (USD million, Per cent)

Exports USD Million Per cent

Total 236 100

Fertilisers 12 5

Crude oil 7 2.9

Ferro-alloys 9 3.8

Mineral water 6 2.5

Nuts 13 5.5

Precious metal ore & concentrates 14 5.9

Scrap aluminium 8 3.3

Scrap black metals 29 12.2

Manganese ore 11 4.6

Wine 19 8

Other 108 45.7Source: Data from the State Department for Statistics

In spite of the fact that export has considerably increased during the current year, trade balance deficit has reduced and coverage of imports by exports has reached around 44 per cent, working environment for Georgian exporters still needs to be improved and all small problems, creating barriers to the export, have to be eliminated, namely problems related to transportation, customs, taxation and corruption. The State Customs Department has already begun considering the problems and their probable solutions.

There is a need of simplifying pre-import procedures and increasing the period of row material processing and their exporting. For the time being, entrepreneur has to import materials, process them and export products during 180 days, and this given period is, in most cases, not enough. Because of this, producer has to pay all taxes, despite the fact that he produces products for export and, as a consequence, these products become less competitive on the market.

At the same time, there is also a need for raising Georgian entrepreneurs’ awareness of the basics of the marketing, which will enable them to compete more successfully on the international markets. Origin of Imports

The two major items in Georgia’s imports remain natural gas and oil & oil products. The share of these products in total import is approximately 16 per cent. Other major imported product groups are pharmaceuticals, cigarettes, cereals and electricity.

INTERNATIONAL TRADE AND FOREIGN ECONOMIC RELATIONS


Table 5.3: Structure of Imports 2000, Q1-Q3 (USD million, per cent)

Imports Million Per sent Total 537 100Cigars and cigarettes 23 4.2Electricity 12 2.2Radio and TV sets 14 2.6Flour 15 2.7Cereals 16 2.9Land vehicle, except rolling-stock 11 2Sugar 12 2.2Natural gas 44 8.1Oil and oil products 43 8Pharmaceuticals 23 4.2Other 324 60.3

Source: Data from the State Department for Statistics

CHAPTER SIX: PRIVATISATION


Privatisation process saw little progress in the second quarter of 2000. While the privatisation of the small enterprises continues to be successful, privatisation of large industrial enterprises by investment tender still remains problematic. It seems that more restructuring is needed before those enterprises become attractive to investors, and the investment conditions set by the tenders are also creating obstacles to successful sales. Privatisation of the major assets of telecommunication sector is planned to be completed at the end of the year, however the amount of work to be done by the financial adviser makes this target quite unrealistic. A restructuring and modernisation strategy for Poti Port has been established, which, if successfully implemented, will improve the operation of the port. SMALL ENTERPRISE PRIVATISATION Privatisation of small enterprises is still the most successful. Although the acquisition of enterprises by insiders is still widespread; the fact that the enterprises are in private hands is the most important development in the longer term: if insiders find that they are not capable of managing enterprises successfully, they are likely to sell them to more efficient owners. Thus an emerging resale market will ensure that assets end up in the hands of those who can do most with them. As of 1st July 2000, 13,207 small enterprises had been approved for privatisation and 14,756 had actually been privatised1. In the first half of 2000, 290 small enterprises were transferred to private ownership (for details see Table A6.2 of the Statistical Appendix). Most of the small enterprises are in the trade and service sectors - 35 and 44 per cent respectively. According to the regional breakdown given in the Table A6.4 of the Statistical Appendix, 31 per cent of the small enterprises are privatised in Tbilisi. The Autonomous Republic of Achara still is way behind the other regions in the privatisation of small enterprises, there were no privatisation cases in Achara this year. MEDIUM AND LARGE ENTERPRISE PRIVATISATION The number of the medium and large enterprises (MLE) approved for privatisation as of 1st July 2000 remains the same, while the number of established JSCs increased by 19. 2 in manufacturing, 3 in agriculture and food, 1 in trade, 1 in oil products, 1 in transport, 7 in social sphere and 4 in energy sector. The total number of the established JSCs increased to 1,220. According to the Table 6.1 total number of the actually privatised MLEs as of 1st of July 2000 increased to 1,002. Manufacturing still remains to be the most privatised sector followed by service and trade sectors. 82 per cent of the established JSCs have been privatised.

1 The number of enterprises actually privatised can exceed those approved for privatisation since some are split up during corporatisation. The total number of small enterprises, including those not approved for privatisation, is not available. Small enterprises are those with a book value of less than USD 44,000 on April 1st 1993.

PRIVATISATION


Table 6.1: Privatisation of MLEs by Sector (GET Classification), as of 1 July, 20002

SectorNo. of

es tablished M LEs

No.of privatised M LEs

% of privatised

Agriculture & food 282 257 91.1Construction 157 139 88.5Energy 164 49 29.9Manufacturing 287 282 98.3Mining 20 13 65.0Service 45 44 97.8Social services 69 55 79.7Trade 54 51 94.4Transport 131 112 85.5Total 1,209 1,002 82.9

Source: Ministry of State Property Management Privatisation by cash auction The MSPM is continuing to conduct cash auctions. The shares of some JSCs are still offered for sale with a reserve price of 150 per cent of their nominal value, some shares are offered at lower prices, however the amount of shares sold at cash auctions is insignificant. For most of the shares, cash auctions are only a procedure to be completed before they are actually sold at zero reserve price auctions. The sixth zero reserve price auction took place from March 24th to April 24th of 2000. 3.249 million state-owned shares of 30 JSCs were offered and sold at the auction. The total nominal value of the shares was USD 3,368,845. The total number of bids was 510 and the highest number of bids (133) was made for JSC Bagdati. The total amount paid at the auction was GEL 136,310. The largest amount was paid for the shares of Bagdati GEL 26,139. The shares of Ethereal Oil Mechanical-Repair plant got the highest price at 25 tetri per share. The lowest amount was paid for the shares of Abasha Bread company GEL 21, while the lowest price was paid for the shares of JSC MTP Servisi - 0.3 tetri. 13 majority shareholdings were sold at the sixth zero price auction. Privatisation by investment tender Privatisation of the large industrial enterprises by the investment tender still remains problematic. Enterprises like JSC Kimbochko, JSC Tami, JSC Metekhi Ceramics, JSC Sakabreshumi, JSC Saktungoeterzeti, JSC Chkhorotskuhesi, JSC Elektroshedugeba, JSC Elmavalmshenebeli, are still in the state ownership. The main reason of the failure to sell these enterprises is not the price, but the conditions of the tender. In many cases the conditions to be fulfilled by the investor are almost unrealistic. A heavy burden of the investment programme can be observed even in cases where the enterprise is already privatised and the new owner had committed himself to implement the requirements set by the tender conditions. After some progress in implementing the investment

2 Private enterprises are defined as those that are more than 50 per cent privately owned. Data on 11 of the 1,220 enterprises established is missing from MSPM's database. In Table 6.1 the classification by sectors is made by GET according to the dominant activity of each enterprise. This differs from the classification made by the MSPM, given in the Table A6.1 of Statistical Appendix. The MSPM classifies enterprises according to the Ministry or Department that was responsible for them under the Soviet system.

PRIVATISATION


programme Saga Print (a new owner of JSC Chiatura Manganese) had difficulties to fulfil the commitments considered by the conditions of the tender. The sanctions against the investor were not introduced because of the complex socio-political situation in the region. The meeting of the ministers of SPM, Industry and Trade, president's representative in Imereti region, Saga Print's and JSC Chiaturamanganumi's management, supervisory board and representatives of trade unions reached an agreement on the following issues: Saga Print is to invest USD 1 million by the end of October 2000, (this amount does not include budgetary arrears, salaries and payments due to social insurance); is to repay the salary arrears following a strictly designed schedule; repay the budgetary arrears also following a strict schedule; starting from September of 2000 is to provide safety norms including establishment of medical service units and rescue teams, and so forth. As of September Saga Print has fulfilled some of the requirements. The company repaid salaries for July and August, covered GEL 100,000 debt to the budget and produced 2,000 tonnes of concentrate. The main obstacle for the efficient functioning of the plant is unstable electricity supply. There are several tenders expected to be announced at the end of this year. According to the presidential decree of 27th July 2000, 90 per cent of the shares of the JSC Georgian State Insurance are offered for sale by tender. The shareholding is offered at a symbolic opening price of USD 1,000. The conditions of the tender are set by the MSPM, Ministry of Finance, Ministry of Economics, Industry and Trade and State Service of Insurance Supervision. The JSC is experiencing severe financial difficulties. Privatisation of telecommunication sector A consortium led by Commerzbank AG has been appointed by the Government of Georgia as a financial adviser of the privatisation of telecommunication sector. It has to find investors for two major assets of the telecommunication sector, JSC Sakartvelos Elektrokavshiri and Georgian Telecom. 75 per cent of Sakartvelos Elektrokavshiri (the dominant local telecommunications company), and 51 per cent of the shares of Georgian Telecom (the leading long distance operator in Georgia) will be sold either by an open tender or a competitive direct sale procedure. Potential investors may be given the opportunity to bid for shareholdings in both companies individually or as a single package. Comerzbank has sent an information memorandum to the potential investors. The target revenue from the privatisation of these assets is GEL 100 million due in the fourth quarter of 2000. The target is quite ambitious and requires great effort from the financial adviser to be met, although the delay seems to be inevitable. An independent Telecommunication Regulatory Commission has been established which would be in charge of setting tariffs and issuing licences. POTI SEAPORT RESTRUCTURING AND MODERNISATION STRATEGY The Poti Seaport Restructuring and Modernisation Strategy has been worked out by the United States Agency for International Development (USAID) and the European Union TACIS project (HPTI) experts. The main objectives of the Poti Seaport restructuring and modernisation strategy are: 1) to separate operational and administrative-regulatory functions; 2) to create competitive environment and attract foreign and local investment; 3) to introduce modern technologies in the seaport, ensure its consistent and stable functioning,

improve management skills, improve the quality of services. The strategy envisages institutional arrangement of the Poti Seaport. The strategy, in accordance with the relevant legal acts, identifies the activities that Poti Seaport implements independently under the state control. It also defines the activities that Poti Seaport Administration carries out to provide security of navigation and establish order in the seaport.

PRIVATISATION


The MSPM and the Ministry of Transport and Communications, in cooperation with other relevant authorities, are to complete the step-by-step restructuring process of Poti Seaport by the end of 2001. After that separate terminals would be leased (long term concession) to strategic investors by tender. The EU Experts would select strategic investors. Poti Port Administration shall manage the state property, support development of infrastructure of Poti Port, carry out activities for environment protection. It will also prepare considerations for the MSPM and the Ministry of Transport and Communications concerning expediency of concession of the state property and amount of leasing fee. It shall provide control of protection and maintenance of the state property under temporary leasing. In cooperation with the local and foreign investors, companies operating the terminals, it shall elaborate the Poti Port development plan and support introduction of the modern technologies in the port. According to the strategy, new service and infrastructure companies will be established in agreement with the Ministry of Transport and Communications, the MSPM and other relevant authorities. In the process of reorganisation of Poti Port the social factor is of special importance and, consequently, in the tendering process local qualified personnel should be given privileges. For the successful implementation of international tenders the relevant information should be distributed by all means of mass media. The Poti Port is holding strategically important position since it is located on the route of Trans-Caucasian transport corridor, and with the development of this corridor its role will expand. To use this location and to make Poti Port more attractive for the transportation, it is necessary to involve private sector in development and effective operation of the Seaport based on market principles, which will improve quality of service, decrease costs and create competitive climate. Investment attraction in the Poti Seaport will result in transfer of know-how of technology and management, introduction of modem technologies, and further attraction of foreign and domestic investments. All these will improve the level of seaport's services up to international standards and ensure its transformation into an efficient regional seaport. On the other hand it will support the development of transport sector in Georgia. Although the Strategy envisages the mechanisms of successful implementation of restructuring and modernisation, there is still a number of serious issues that need to be properly addressed such as the question of excess personnel and the amount of pension entitlement, and other social issues. The resolution of these issues will probably be complicated by the existence of strong vested interests.

CHAPTER SEVEN: EMPLOYMENT, INCOMES AND THE SOCIAL SAFETY NET

27 GEORGIAN ECONOMICTRENDS – 2000 No.2

LABOUR MARKET The labour market situation remains complicated being characterised by the high unemployment and underemployment rates. Hidden and disguised unemployment are widespread and long-term unemployment becomes more and more common. The serious labour problems the households are facing lead to painful declines in their living standards. Though the unemployment rate based on the registration figures is optimistically low, it fails to reflect the real situation on the labour market, since very few of the unemployed consider it worth registering given the symbolic sum of the unemployment benefit, short period of its payment and very low chances of finding job through registration. The information on unemployment, employment structure, economically active population, population outside labour force and labour force participation rate drawn from the State Department for Statistics Labour Force Survey (LFS)1 and the Household Survey2 can be considered bearing much more relation to the real situation. As the household survey results show, while the size of the economically active population resumed its seasonal growth in H1 2000, compared to the end of previous year, the annual decline in the labour force participation rate is impressive – at 3.8 percentage points in H1 2000 - and is supported by both the employment figures and anecdotal evidence: the number of both hired and self-employed is falling, more and more people join the ranks of the long-term unemployed, are categorized as “discouraged workers”, and fall out of the labour force. As a result of this process, they are not considered to be unemployed any more, thus, resulting in lower unemployment rate. Therefore, the reduction of the unemployment rate in H1 2000 (see Table 7.1) is due rather to the lower participation rate than to the creation of jobs on the labour market3. Growing gap between the unemployment rate measured by the ILO ‘strict’ standard and the one measured by the ILO ‘loose’ methodology is the best evidence of all the above-mentioned. Table 7.1: Economic Status, Q I 1999 – Q2 2000* (Thousands)

Economic Status Q I 1999 Q II 1999 Q III 1999 Q IV 1999 Q I 2000 Q II 2000Tota l population over 15 years old 3, 032 3, 049 3, 092 3, 018 3, 123 3, 151Tota l economically active population (labour force ) (1) 2, 018 2, 052 2, 058 1, 917 1, 951 2, 102Tota l economically active population (labour force ) (2) 2, 058 2, 093 2, 106 1, 975 2, 087 2, 199 Employed 1, 725 1, 784 1, 792 1, 633 1, 705 1, 890 Hired 737 743 741 710 679 695 Self-employed 973 1, 023 1, 030 905 912 1087 Unemployed (1) 292 268 266 284 246 212 Unemployed (2) 333 308 314 342 382 309Unemployment rate (per cent) (1) 14.5 13.0 12.9 14.8 12.6 10.1Unemployment rate (per cent) (2) 16.2 14.7 14.9 17.3 18.3 14.0

Source: Data from the SDS Labour Force Survey and the SDS Household Survey Note: (1) ILO Standard (or “strict” methodology (2) ILO “Loose” Methodology * For 1998 figures see Statistical Appendix Table A7.1. Cities are major contributors to the high levels of unemployment and the capital accounts for the majority of the unemployed in the country – 41 per cent of the total number of the unemployed. As the 1 Labour Force Survey (LFS) started by the SDS in 1998-1999 with the help from ILO and UNDP. 2 The SDS since Q3 1996 is implementing the continuous Household Survey with the financial support of the World Bank and in co-operation with Statistics Canada. 3 Since economic status data where drawn from the SDS Labour Force Survey up to the end of 1999, and starting from 2000 – from the SDS household survey, slight differences between the methodologies applied in the respective surveys could also account for the substantial fall of the unemployment rate in Q1 and Q2 2000.

EMPLOYMENT, INCOMES AND THE SOCIAL SAFETY NET

GORGIAN ECONOMIC TRENDS – 2000 No.2 28

LFS results show, while rural unemployment rate was just 3 per cent (according to the ILO ‘strict’ standard of measurement) at the end of Q 2 2000, urban unemployment rate was 18.6 per cent. Including discouraged workers, the situation on the labour market looks even more deteriorated: the unemployment rates were respectively, 4.6 per cent in rural areas and 24.7 per cent in the cities. The encouragingly low rural unemployment rate, however, cannot be considered a basis for optimism, since agricultural ‘self-employed’ account for 65 per cent of the total employment (the SDS on-going household survey) and majority of them hardly earn enough to subsist. Self-employment can still be considered the dominating segment of the labour force and accounts for over half of employment, though its share in both the labour force and total employment is on the downward trend. In absolute terms, however, both hired and self-employment have experienced annual downsizing. It is worth mentioning, that self-employment, in its turn, is dominated by the agricultural self-employment (86.5 per cent as of end of Q2 2000), being, as well as non-agricultural self-employment in trade and services, largely nothing more than earning subsistence. Almost 70 per cent of hired employees were employed in the state sector comprising 16 per cent of the adult population and 23.7 per cent of the labour force (499.2 thousand) as of the end of H1 2000. The vast majority – 67.7 per cent – of state employees worked in budgetary organisations, receiving low and extremely irregular salaries. On average, just 7 per cent of the adult population (219.4 thousand) had conventional jobs, i.e., salaried jobs in private companies in 2000, however, the majority of these jobs are likely to be relatively low paid insecure jobs in small firms. Though the share of the state sector employees and the share of the self-employed in total adult population are diminishing, and the share of private sector employees is growing; the absolute numbers of those employed are falling and the number of those outside the labour force is growing. Figure 7.2: Employment characteristics of the population over 15 years old, Q2 2000

Employee in state sector

16%

Employee in private sector

7%

Self-employed

36%

Unemployed7%

Outside of labour force

34%

Source: Data from the SDS Household Survey Note: Share of the population outside labour force is given according to the ILO ‘strict’ standard of measurement, i.e.,

including discouraged workers. The labour force is shrinking as more and more long-term unemployed give up hope of finding job and become ‘discouraged workers’. The long-term unemployed’s prospects to find a job are poor and the more prolonged the period of unemployment, the smaller the chances of finding a job. Most of jobs that might be found offer extremely low remuneration and would not be able to change household budget situation. The ‘discouraged workers’ run the risk of falling out of the labour force, and, in the long run, of social isolation and social exclusion.



Currently, the underemployment is a much more common phenomenon than open unemployment, as majority of the employed is engaged in low-paying and insecure segments of the labour market under poor working conditions. As job creation in the formal sector is extremely limited and the large part of the work force lacks skills, most jobs are created in the informal sector that is a major provider of urban jobs, and in low-productive agriculture; many of these are part-time or temporary jobs. Informal activities, that are mostly a way of surviving, are largely unrecognized, unrecorded and unregulated small-scale activities, many of them are irregular self-employment (over 55 per cent of total employment). SALARIES AND WAGES The concept of a minimum salary was re-introduced after a 4-year gap by a presidential decree in June 1999. Since then, the salaries of budgetary organisation4 employees range between GEL 20 and GEL 66. As the SDS household survey figures show, the average monthly nominal salary of hired employees across the economy was GEL 80.9 in Q2 2000 - a 37.8 per cent annual nominal growth. The share of the average monthly salary in the minimum subsistence level of a family of four was 41.2 per cent at the end of Q2 2000. Many public sector employees are paid only token salaries, the cases of non-payment of salaries whatsoever are widespread, arrears in the payment of budgetary employees’ salaries persist and the growth in salaries is purely nominal. MINIMUM SUBSISTENCE LEVEL The methodology that is currently being used for calculating the minimum subsistence level, that was introduced in early 90-ies is largely outdated now and discussions on the necessity of introducing a new methodology have been held for several years already. In August 1999 a Government meeting passed a decision ”On Introducing Changes into Calculation Methodology and Re-calculation of the Minimum Subsistence Level” and a draft presidential decree “On Defining and Applying Subsistence Minimum” has been drawn up. The new methodology to calculate the minimum subsistence is ready at the SDS. However, as no formal steps have been taken so far to formalise it, the old methodology is still in use, and it remains to be seen to what extent the minimum subsistence levels to be calculated basing on the new methodology are going to better reflect the reality. The subsistence minimum levels published by the SDS, were: GEL 113.2 for a working man, GEL 99.3 for an average consumer and GEL 197 for a family of four – on average at the end of Q3 2000, a 3.5 per cent year-on-year growth. As usual, the minimum subsistence level in Tbilisi was higher than the national average, this time by 4.1 per cent, reflecting the growing gap between the national level and the level in the capital. SOCIAL SAFETY NET The social policy reform is among the top priorities in the country, as it becomes apparent that the existing system proved to be unsustainable. The current social safety net system is largely the heritage of the soviet past and in the conditions of transition economy appears to be ineffective as poverty refuses to subside. The pay-as-you-go pension system is not in the position to ensure payment of the extremely low flat rate benefits payable to all the pensioners and the tightly targeted

4 A budgetary organisation is a public organisation fully subsidised by the state budget.



token social benefits are unable to alleviate poverty. However, even these are too high a burden for the current government budget. The fundamental restructuring of the state social protection system is indispensable and should be aimed at creating economically viable, affordable and equitable social safety net, promoting growth. “A Concept of Social Development” presented by the Government, with the support from President, in January and followed by a presidential decree issued in May stipulating the measures to be implemented in accordance with the conceptual basis of the social development, are declarations of a long-term commitment to social sector reforms. However, there is still a long way to go before actual results become visible. State Social Allowance The State Social Allowance is targeted now at households comprised exclusively of non-working pensioners without a legal breadwinner, and/or orphans. Actually, it represents a kind of topping-up of symbolic pensions of the poorest elderly and a modest child allowance of the most destitute children. The State Social Allowance payable to each recipient is, in accordance with a presidential decree of 21 August 2000, GEL 20 for a qualifying household consisting of one member, or for each orphan under guardianship, and GEL 29 for an eligible family of two or more. Unemployment Benefit The standard monthly Unemployment Benefit payments are fixed at GEL 14 for the first two months of unemployment, GEL 12 for the next two, and GEL 11 for the final two months of payment. To become officially eligible, a person should be registered as an unemployed, therefore, should have certain working record in the official sector, and the benefit is payable only for the first six months of registered unemployment. As a result, the number of the unemployed who bother to register is several times lower than the actual one and the number of the benefit recipients is insignificant (on average, hardly 2 per cent of the registered unemployed). Pension System The current pension system is functioning on a pay-as-you-go basis, pensions being financed through the United State Social Safety Fund – the only pension fund providing fixed-rate symbolic (equivalent to about USD 7.5 per month) old-age pensions to the majority of pensioners. The revenue of the fund is formed from the payroll tax proceeds5 with the budgetary transfers meant to compensate for the under-funding of pensions. The pension system that proved to be unsustainable and insolvent continues to accumulate arrears, since it is a difficult, if not an impossible, task for a tight budget to cope with regular payments at the same time as having the burden of old commitments, especially under the conditions of constant tax undercollection and incompliance. The dependency ratio6, at 1:1.2, is unsustainable for a universal PAYG scheme, and while the ratio should be at least 3:1 for the system to be functioning relatively smoothly, the proportion of those working but not contributing is high. The low level of wages and no link between the future benefits and current contributions result in virtually no incentive for those employed not to evade paying taxes, and a relatively high payroll tax rate discourages tax compliance on the part of the employers. While the contribution rate is high, the contribution base is narrow. The current pension system is characterised by a low replacement rate7: the average pension flat rate of the majority of pensioners is hardly 20 per cent of the average hired employees’ monthly salary.

5 The contributions from workers’ wages, that form the United State Social Safety Fund (USSSF) revenue are 26 per cent of gross wages for budgetary organisations and 27 per cent for others paid by the employer and 1 per cent paid by employees. 6 The number of pensioners as a per cent of the number of people employed, or contributor to beneficiary ratio. 7 The average pension in terms of the average wage.



Monthly pensions are now GEL 14 for the majority of elderly. As of end of September 2000, pensions accounted for just 7 per cent of the minimum subsistence level of an average consumer. It is apparent that the current pension system undergoes severe crisis that is economically, politically and socially painful. Neglecting the short- and long-term consequences of the current situation would place the vulnerable at serious economic risk and may result in growing poverty, social disintegration, marginalisation and social exclusion. At the same time, the elaboration and implementation of an effective social policy would offer a more solid base for long-term economic growth. Reform of the pension system is now among Government’s top priorities, and a far reaching pension reform programme is being designed, aimed at establishing a financially sustainable modern pension system suited to changing demands of transition economy and, where possible, tailored to local conditions. The Government, strongly committed to reforms in the social sector, is supported by President and assisted by advice from external aid agencies in implementing, developing and supporting the reform programme. A PAYG system is based on a solidarity contribution8 principle, and is effectively an element of the social safety net, and thus, can only provide basic minimum pensions to the elderly. However, it is not in the position to provide adequate benefits to the elderly on its own. In order to provide a plurality of possibilities and availability of choice for those who can afford to make provisions for their future pensions, it is logical to introduce a multi-pillar system9. This would have the benefits of increasing personal responsibility and creating savings funds for investment. The point of pension reform is to stabilise the pension system and ultimately to increase the pension benefit through higher returns.

8 A compulsory contribution which is not expected to earn a specific benefit for the contributor but which is required by the social security system in order for it to provide benefits to others. 9 For detailed definitions of the pillars and some other pension system terms see GET 1999 No. 3, Chapter 7, p. 64.

CHAPTER EIGHT: THE EU-GEORGIAN RELATIONS


Relations between the EU and Georgia are developing on the basis of the Partnership and Co-operation Agreement (PCA). The agreement entered into force on July 1, 1999. The PCA covers all spheres of co-operation except military issues. The main aspects of the EU-Georgian relations are trade, technical assistance and support in resolution of the internal conflicts. During the recent years Georgia received EC assistance worth about EUR 270 million. The new technical assistance regulations have been recently adopted in the EU. These regulations cover 2000-2006 and provide financial assistance worth EUR 3.136 million through the Tacis projects. The first sub-committee meeting on trade and economic issues of the European Communities (EC) and its Member States and Georgia was held on July 14th 2000 in Tbilisi. The objective of the meeting was to discuss macro-economic developments in Georgia, trade, business and investment issues. Another important event in the EU-Georgian relations was the second meeting of the EU-Georgian Co-operation Council, held in Luxembourg on October 10, 2000. The meeting examined democracy, economic, legislation issues and set up the priorities for future co-operation. Georgia's trade with the EU Relations between the EU and Georgia are developing on the basis of the Partnership and Co-operation Agreement (PCA). The agreement entered into force on July 1, 1999. The PCA covers all spheres of co-operation except military issues. Key areas of the co-operation agreement include: • Elimination of trade quotas and provision of most favoured nation (so-called MFN) treatment; • Protection of intellectual, industrial and commercial property rights; • Investment provisions of MFN or national treatment to companies and freedom of capital

movement; • Yearly political dialogue at ministerial, parliamentary and senior official level. Trade, technical assistance and support in resolution of the internal conflicts can be considered as main aspects of the EU-Georgian relations. Trade relations between the EU and Georgia amounted to USD 176.9 million in the first nine months of this year, with export share of USD 50.0 million and import of USD 126.7 million. Comparison of the trade figures shows that export has increased by USD 18.6 million and import has increased by USD 25.4 million. Table 8.1: Georgia’s Trade with the EU Countries (USD millions)

Year Turnover Exports Imports Balance 1998 9 months 246.63 22.13 224.5 -202,37 1999 9 months 132.75 31.41 101.34 -69.93 2000 9 months 176.7 50.0 126.7 -76.7

Source: Ministry of Trade and Foreign Economic Relations

THE EU-GEORGIAN RELATIONS


The low intensity of trade between the EU and Georgia can be explained by several reasons: small size of Georgian market, negative influence of Russian crisis and unfavourable business climate in the country, which discourages attraction of foreign direct investments and impedes the trade. At the same time the main trade partners of Georgia are Russia, Turkey and the former Soviet republics. The EU/Tacis Programme in Georgia The assistance of the European Commission (EC) comprises an important part of the EU-Georgian relations. During the recent years Georgia received EC assistance of about EUR 270 million. The support was provided in the form of humanitarian aid, food aid, budgetary food security assistance, macro-financial assistance and technical assistance. After coming into force of the Partnership and Co-operation Agreement, the European Commission is shifting its assistance policy from humanitarian aid to technical assistance, rehabilitation and promotion of foreign investments and trade. The new technical assistance regulations have been recently adopted in the EU. These regulations cover 2000-2006 and provide financial assistance of EUR 3.136 million through the Tacis projects. The Tacis projects play an important role in supporting the implementation of Partnership and Co-operation Agreements in post Soviet countries. The TACIS projects in Georgia are: Tacis Information and Communications Programme (TICP), Georgian Export Promotion Agency (GEPA), Georgian-European Legal and Policy Advice Centre (GEPLAC), Centre for Enterprise Restructuring and Management Assistance (CERMA), TRACECA and INOGATE. Tacis Information and Communications Programme (TICP) was launched in Georgia in April 2000. Activities of the TICP office are focused on communication, dissemination of information and support of the projects in related areas. The TICP financed several Georgian State Television TV programmes. The aim of these programmes was to inform the Georgian population about EU polities, policies and current activities such as introduction of the European Common Currency (EURO) and the EU enlargement process. The TV programmes have also presented four other Tacis projects in Georgia. TICP publishes a monthly newsletter, which provides news and information about Tacis programmes. TICP assists Tacis projects in organising press conferences and meetings with media. TICP Georgian office is responsible for providing regular information about Tacis projects to the head office in Brussels. The Centre for Enterprise Restructuring and Management Assistance (CERMA) was established in 1997 by the Decree of the President of Georgia with the financial support of European Union and the World Bank. The objective of this project was to support enterprise restructuring process in post-privatisation conditions in Georgia. CERMA worked on more than 35 restructuring assignments and achieved various levels of success. The most successful results were achieved in the projects of Tetroni, Marsi, Vaziani, Lilo, and Kutaisi Dairy. Restructuring activities of CERMA project aim at assisting companies in debts freezing, creation of start-ups, creation of new products, increasing sales, creation of employment opportunities, training of consultants and managers.



As the energy sector still remains one of the most problematic spheres in Georgia, the European Union Tacis project “Creation of an Energy Efficiency Centre and Development Natural Energy Resources Study in Georgia” has funded the set up of Energy Efficiency Centre (EEC) in Georgia in 1998. The objectives of this centre are to improve energy efficiency inside the country, improve the energy balance, reduce the environmental impact and contribute to competitive climate in the industry and commerce. The Energy Efficiency Centre has developed a project on supporting construction of Suramula Small Hydropower, which provides electricity supply to the Rikoti Pass tunnel. The British company “Clipsal” have also participated in the project. Through the Tacis projects the European Union actively assists the ongoing legal reforms in Georgia. Financing of Georgian judges retraining project is a demonstration of this support. The “Retraining of Judges” programme supports the development of legal system in the country. The programme has organised a two-week study tour for Georgian judges and legal experts. Twenty-one Georgian lawyers have participated in the study tour, which took place in Berlin, Bremen and Strasbourg. The agenda covered series of meetings at the Ministry of Justice in Germany, as well as attendance of criminal, civil and administrative hearings in the courts of Berlin and Bremen. The study tour was finished in Strasbourg were the participants had meetings with the representatives of Council of Europe and discussed legal issues related to the functioning of the court, policies and procedures of the European Court of Human Rights. The EU-Georgian negotiations The first sub-committee meeting on trade and economic issues between the European Communities (EC) and its Member States and Georgia was held on July 14th 2000 in Tbilisi. The meeting was established under the Partnership and Co-operation Agreement (PCA). The objective of the meeting was to discuss macro-economic developments in Georgia, trade business and investment issues. Both sides have underlined that Georgia faces difficult fiscal circumstances, and corruption and smuggling remain the biggest problems for the country’s economy. It was also emphasised that in order to foster the trade, consolidate existing investments and attract new FDI’s, the Georgian custom and tax codes should be revised further. On the other hand, the Georgian side has clearly declared that full and correct implementation of the PCA and further approximation of Georgian legislation to the “acquis communautaire” is the Government’s top priority. With this respect the Government Commission on implementation of Partnership and Co-operation Agreement was established under the Decree of the President of Georgia on July 24th 2000. The objective of this commission is to supervise the PCA implementation and co-ordinate activities of the Ministries involved in the PCA implementation. Another important area discussed included trade issues. This covers recent developments in EU-Georgia trade relations, market access issue, public procurement, and regional trade references, WTO activities and intellectual property sector. In terms of market access the European side expressed its dissatisfaction with relations between European airlines and Georgian Company Air Zena. The EC warned that the European airlines operating in Georgia, like British Airways, Austrian Airlines and others, should not be obliged to enter into co-operative agreement with Air Zena as a condition for their future operation in Georgia.



To facilitate the trade between the EU and Georgia, Georgia needs to harmonise its customs and quality assessment procedures with international standards. Taxes on the export of goods must be eliminated under the World Trade Organisation (WTO) rules. Another important issue is to strengthen measures against the smuggling, which significantly impedes Georgia’s trade relations. The meeting has also discussed the bilateral free trade agreements. Georgia signed bilateral free trade agreements with all CIS countries except Belarus, Kyrgystan and Tajikistan. All these agreements have already entered into force, only agreements with Moldova and Uzbekistan are waiting for ratification by the Parliament. On the other hand, none of the CIS countries with whom Georgia has signed the agreements is a member of the World Trade Organisation. The sub-committee recalled that in such cases the WTO committee would discuss the agreements to ensure the compatibility with GATT/WTO and GATS requirements. The meeting also addressed the process of implementation of European standards in Georgian Economy. It was noted that Georgian government has adopted the programme on implementation of European standards, but the programme faces certain problems due to the lack of experience and expertise. The programme covers development of the system for accreditation of laboratories for testing, certification, as well as modernisation of metrology. In public procurement sector Georgia was granted observer status under the WTO Government Procurement Agreement (GPA). But the lack of financial resources, experience and expertise negatively effects development of a public procurement sector. With this regard, the Georgian side requested to continue the EU assistance in this field. The second meeting of the EU-Georgian Co-operation Council was established in Luxembourg on October 10th 2000 under the chairmanship of Georgia. The meeting covered democracy issues, bilateral trade relations, business climate, approximation of legislation, fulfilment by Georgia of the commitments of World Trade Organisation, conflicts resolution and regional co-operation. The sides have also defined priorities for future co-operation. These priorities are: • Democracy and institutional reforms; • Development of infrastructure; and • Development of business climate. Another confirmation of development of the EU-Georgian relations is the decision of European Union to allocate EUR 1 million for the Ministry of Defence of Georgia on the basis of the request of President of Georgia in order to improve capacity of Georgian frontier guards at the Chechen portion of the Georgian–Russian border in September 2000. It is worth mentioning that this assistance was financed from the budget of the Common Foreign and Security Policy (CFSP).

CALENDAR OF EVENTS


2000 JUNE 1 Government/Parliament approved the most disputable candidates for the posts of Ministers –

N. Chkhobadze, as the Minister of Environment Protection and Natural Recourses and D. Adeishvili as the Minister of Transport and Communications. Parliament anonymously ratified the package of agreements on “Baku-Tbilisi-Ceyhan” project.

13-21 International Aid/Policy/IMF During the official visit of the IMF mission headed by David Owen, the parties discussed three issues – budget crisis, corruption and poverty. The issue of the next IMF credit will not be discussed until Georgia fulfils its previously undertaken obligations.

14 Privatisation American AES Company presented its proposals for privatisation of TBILGAS to Tbilisi Municipality. It offers to invest up to USD 250-300 million into development of gas sector for the right to manage the majority shareholding for 25 years.

13 Infrastructure “Air-Zena – Georgian Airlines” leased “Boeing 737-500” for a 5-year term on the basis of Georgian-German-American project. Infrastructure ”Memorandum on Mutual Understanding” was signed between Georgia and Iran. The Iranian party considers that the south segment of the Eurasian Transport Corridor passing via Georgia and Armenia has great prospects and is ready to help Georgia in roads reconstruction.

JULY

1 Investment EBRD purchased 18 per cent shares of the “Bank of Georgia. 7 Government Extraordinary governmental session was dedicated to the revision of the central

budget for 2000. Minister of Finance, Z. Nogaideli suggested further reduction of the budget. 15 Investment/Money and Banking The IFC approved 3 investments in the banking sector:

USD 3 million credit line in TBC Bank, USD 750 thousand in MICROFINANCE Bank is to support mortgage financing for renovation and acquisition of residential and commercial real estate.

21 Agriculture The USA administration is granting 35 thousand tonnes of wheat to Georgia. The agreement was signed by the US Ambassador in Georgia.

26 Privatisation/Agriculture The USAID extended fiscal support in the land reform project. Association of Landowners’ Rights held a meeting with regional community in Telavi at which it introduced its own version of the program of land privatisation.

AUGUST

18-19 International Relations The CIS summit was organised in Yalta. Delegation from Georgia

was headed by President Eduard Shevardnadze.

CALENDAR OF EVENTS


21 Social Safety Net A presidential decree “On Social (Family) Allowance for the Vulnerable” provided for social allowance to be targeted at households comprised exclusively of non-working pensioners without a legal breadwinner, and/or orphans. The Social Allowance payable to each recipient is GEL 20 for a qualifying household consisting of one member, or for each orphan under guardianship, and GEL 29 for an eligible family of two or more.

23 Government Governmental session summed up the totals of the first six months and discussed budget for 2001.

26 Economic Relations/Energy Representatives of “EUS Russia” JSC and Azerbaijanian energy company “Azerenergy” signed two agreements in Moscow on transit of Russian electricity to Turkey via Azerbaijan and Georgia.

30 Industry A meeting dedicated to the problems of “Chiaturmanganese” in Chiatura took place. It was decided to give “Saga Print” the last opportunity to improve the situation at the enterprise.

SEPTEMBER 2 Foreign Relations Russian Ministry of Foreign Affairs sent an official notification to the CIS

Executive Committee on withdrawal from Bishkek Agreement on non-visa regime for CIS citizens within the Commonwealth.

12 Economy/Investment Meeting of shareholders was held at “Chiaturamanganese”. It was noted that “Saga Print” had already fulfilled some obligations undertaken at the meeting in August. The company repaid salaries for July and August, covered GEL 100,000 debt to the budget and produced 2,000 tonnes of concentrate.

22 International Relations/Agriculture During the working visit of President Eduard Shevardnadze to Germany, it was decided that Germany would allocate DM 2.7 million to help overcome the effects of drought.

13 Oil and Gas Head of the Canadian Oil Company “CANARGO” David Robson announced that Norwegian investors intend to invest USD 30 million in Ninotsminda oilfield in the Eastern Georgia. The agreement on the participation of Norwegian investors in the works carried out by “CANARGO” was achieved in summer this year.

30 Government/ Budget Government of Georgia submitted the final version of the next year budget to the Parliament.

OCTOBER

8 Parliament/Taxation The first sitting of the Commission on Georgian tax system reform took

place. The Commission on co-ordination of the activity of executive and legislative power branches in the tax sphere was formed by a presidential decree. State Minister Gia Arsenishvili was appointed the Head of the Commission.

9-13 Statistics Seminar on "Arrangement of Energy Statistics in Transcaucasian States" was held within the framework of TACIS program at the SDS. The aim of the seminar was a better understanding of the needs and possibilities of the Transcaucasian countries and estimation of the energy resources.

9 Privatisation The privatisation of 75 per cent of the shares of "Tbilgazi" was decided to be postponed until next spring. Meanwhile, an American consulting company "HAGLER BAILLY" will undertake the management of "Tbilgazi".

CALENDAR OF EVENTS


15 Economic Relations/Oil and gas The agreements on the Main Export Pipeline project "Baku-Tbilisi-Ceyhan" were signed and approved by a presidential decree. The GIOC President George Chanturia was appointed Charges d'Affairs of President of Georgia to sign the annexes to the "International Agreement" on behalf of Georgia.

13 International Policy/Electricity Russia and Turkey made final agreement on the supply of Russian electricity to Turkey via Georgia. Russia intends to supply 100-110 million kW/h to Turkey monthly. Annual amount in USD will equal 50 million. Oil and Gas Package of Agreements on the Main Export Pipeline “Baku-Tbilisi-Ceyhan” was signed at the ceremony in Baku.

17-19 Oil and Gas The USA Trade and Development Agency is going to finance a feasibility study for building a large oil refinery (SOR) in Supsa. The project starts in 2001 and is planned to last for 5 years.

20 Agriculture/International Aid According to the information of the Ministry of Agriculture, USAID allocated USD 2.5 million to Georgia for overcoming the consequences of drought.

25 International Relations During the IMF mission visit, David Owen, head of the mission noted that macroeconomic situation in Georgia has improved to some extent since the previous mission visit. He also considered the version of the 2001 Budget submitted to the Parliament quite acceptable.

APPENDIX I: POST-ACCESSION TO THE WTO


By Tamar Beruchashvili, Deputy Minister of Foreign Affairs of Georgia On June 14th 2000 Georgia became the 137th full member of the World Trade Organisation (WTO). Georgia perceives this event as one of the important achievements of its foreign policy. For Georgia, membership in this organisation means recognition of success of economic reforms, integration into the world economy, opening of foreign markets for Georgian export, attraction of foreign investments, effective use of transit potential, protection of economic interests through WTO mechanisms and, as a result, stability, economic growth, and social welfare. During accession to the WTO, Georgia fixed “bound tariff levels” and the schedule of specific obligations in trade in services, as well as a number of commitments required for harmonisation of domestic legislation of member states with international standards. In the process of fixing the bound tariff levels, Georgia joined a number of initiatives in the spheres of pharmaceutics, chemical products, timber, agriculture, mechanical engineering, and information technology. Herewith, Georgia maintained the right to increase customs tariffs on especially sensitive products (alcohol, tobacco, natural juices, etc.) With this aim, the Ministry of Finance prepared a draft law on introducing changes into the law “On Customs Tariffs and Duties”, which has been circulated to the relevant ministries and departments for submitting their remarks and considerations. Georgian side has fixed its obligation to join, immediately after accession, the WTO’s agreement “On Trade in Civil Aircraft”, which provides exemption of related goods from customs tariffs. In this regard, the Ministry of Foreign Affairs elaborated a draft presidential decree on “Trade in Civil Aviation” and instruction on its implementation. These documents are now under consideration. The Government of Georgia seeks donor assistance to implement post-accession obligations and create local expertise on WTO related issues. Implementation of recommendations provided by the Georgian-European Policy and Legal Advice Centre (GEPLAC) will facilitate harmonisation of the legislation with the European Union’s legislation within the framework of the WTO. The Georgian Export Promotion Agency (GEPA), established with the assistance of a TACIS project, regularly carries out training seminars for exporters and government officials aiming at advocacy on the WTO’s role and possibilities. The CTPL project (Centre for Trade Policy and Law of Georgia) was set up, with the assistance of the Canadian International Development Agency (CIDA), at the former Ministry of Trade and Foreign Economic Relations on November 17, 1999, and currently works under the umbrella of the Ministry of Foreign Affairs. The main goal of this project is to facilitate implementation of the obligations undertaken by Georgia under the WTO and provide professional advice on trade related issues to

POST-ACCESSION TO THE WTO


governmental and non-governmental institutions. Recently CTPL elaborated a draft law “On Anti-dumping, Countervailing and Safeguard Measures”, which is now under consideration in the government. Japan and the USA (the USAID, the US Department of Commerce) also are implementing technical assistance projects in the sector of standardisation and certification. Through seminars and training courses Georgian experts are getting acquainted with modern methods and techniques. According to presidential decree No.433 of July 11th 1999, “On Distribution of Responsibilities in Foreign Trade in Relation with the World Trade Organisation” a governmental commission was set up that will co-ordinate implementation of the WTO obligations and co-operation with the WTO Secretariat.

WTO Regional Seminar Addresses Negotiations Techniques

A five-day WTO Regional Seminar on Trade and Tariff Negotiations Simulations for BSEC Countries was held on 6-10 November 2000 in Sheraton Metechi Palace in Tbilisi. The seminar was organised by the World Trade Organisation (WTO), the Black Sea Economic Co-operation (BSEC), the Ministry of Foreign Affairs of Georgia, and the Centre for Trade Policy and Law of Georgia (CTPL). The representatives of Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Israel, Moldova, Romania, Russia, Turkey and Ukraine participated in the seminar. In her opening speech, Tamar Beruchashvili, Deputy Minister of Foreign Affairs of Georgia emphasised that Georgia, having embraced all the principles of modern economy, began accession process in the WTO. She highlighted Georgia's strong interest in the accession of its partners in the WTO, and assigned a key role to developing trade relations within the framework of the BSEC. T. Bleda, Ambassador, First Deputy Secretary General of the BSEC praised Georgians’ warm hospitality, saying that the seminar should be very interactive aimed at maximising the benefits of the WTO membership. The major issues discussed included: the WTO Principles and World Trade Organisation, and Trade Negotiations in the WTO. The seminar was divided in four sessions, addressing bilateral and multilateral negotiation techniques. The objective of the seminar was to imitate WTO negotiations, which will most probably enable the WTO member countries to prepare for the new round of talks, whereas the non-member countries were given an excellent opportunity to become familiar with the negotiation process. At this stage, Georgia used its advantage, as a full member of the WTO, and started bilateral negotiations with the countries pending accession (Russia, Kazakhstan and Moldova) with the aim of improving accession of Georgian goods and services to their markets. During bilateral negotiations with Russia, Georgia proposed to discuss counterfeiting of Georgian alcohol products on the Russian market, as well as consecutive implementation of agreements

POST-ACCESSION TO THE WTO


concluded with Georgia. These agreements include the agreement on customs checkpoints, implementation of which will significantly facilitate fighting anti-smuggling operations. Hereby, Georgia is interested in Russia’s and other main trade partners’ (Ukraine, Azerbaijan, Armenia) prompt accession to the WTO, as it would facilitate harmonisation of their trade policies with the WTO’s requirements, as well as their pursuing transparent and predictable trade strategy by observing international rules. Georgia has already held negotiations with Moldova, Kazakhstan and Russia, during which the importance of maintaining and developing free trade with these countries, after accession to the WTO, was particularly stressed.

APPENDIX II:

TRADE AND COMPETITION - MULTILATERAL TRADE DISCUSSIONS


By Dimitry Kemoklidze (GEPLAC) Globalisation and trade liberalisation have resulted in growing attention being paid to the role of competition policy in the international trade system in the multilateral, regional and bilateral level. Thus, competition policy has become an important trade policy issue. The interrelationship between trade and competition now figures prominently as one of the new generation of trade issues. Trade liberalisation has substantially reduced governmental barriers to trade; the potential for anti-competitive business practices to frustrate market access has increasingly attracted attention. This covers issues such as the extent to which national competition laws control anti-competitive practices affecting international markets. GATT/WTO The interface between trade and competition was one of the issues that arose during the negotiation of the Uruguay Round, but at that time nothing came of those discussions. After establishment of the WTO, at the first Ministerial Conference of the WTO, which was held in December 1996 in Singapore, it was agreed to set up a Working Group to study issues related to the interaction between trade and competition policies. Important was the fact that the Ministerial Conference, the highest decision-making body in WTO, stated in its declaration that any future negotiations regarding multilateral disciplines in this area would take place only after the WTO members reach an explicit consensus decision. It should be mentioned, that in the Working Group, the US, the EU and Japan have expressed fundamentally different approaches in competition policy discussions. At the end of 1998, the Working Group obtained a mandate from the WTO General Council to continue work during 1999. The WTO Working Group Programme For its first two-year work programme WTO members decided to study following issues: 1. The relationship between the objectives, principles, concepts and instruments of trade and

competition policy; and the relationship of trade and competition policy to development and economic growth.

2. Analysis of existing instruments, standards and activities regarding trade and competitive

policy, including analysis of experiences with their application, specifically: • National competition policies, laws and instruments as they relate to trade • Existing WTO provisions • Bilateral, regional, plurilateral and multilateral agreements.

3. The interaction between trade and competition policies:

• The impact of trade policy on competition • The impact of anti-competitive practices on international trade

TRADE AND COMPETITION - MULTILATERAL TRADE DISCUSSIONS


• The impact on competition and international trade of state monopolies, exclusive rights and regulatory policies

• The relation between competition policy and trade related aspects of intellectual property rights and investment.

Conclusions There is considerable nervousness among both developing and developed countries about multilateral disciplines relating to competition. There is lack of consensus on where competition law and enforcement fits in domestic and international policy-making. Given divergent view of WTO members about national and multilateral competition law, the concern over loss of national sovereignty and the practical difficulties of operating multilateral competition law in the WTO, there is little likelihood of a comprehensive multilateral competition law emerging from the next round of multilateral trade negotiation.

APPENDIX III:

GEORGIA’S SPECIFIC COMMITMENTS IN TRADE IN SERVICES A SHORT COMPRARISON TO OTHER COUNTRIES


By David Jinjolia (GEPLAC) and Daniel Linotte (GEPLAC)

1. Introduction Trade in services is one of the most rapidly expanding fields of international trade. Over the last fifteen years the world export of services has increased 3.5 times, from USD 382.6 billion to USD 1,350 billion. Currently, it makes up one-fifth of all international trade. Services attract more than half of the world’s foreign direct investment. The drastic expansion of service industries highly contributes to economic growth and job creation, both in the developed and developing countries. 2. Definition of Services and Modes of Service Supply The General Agreement on Trade in Services (GATS), which has been negotiated in the Uruguay Round, applies the basic rules on trade in services. It lays down the framework of international rules within which firms operate around the world. The GATS and its rules, in principal, cover all commercially traded services, although a few are the subject of specific annexes. How do services differ from goods? While international trade in goods involves physical movement of goods from one country to another, only a few service transactions entail cross-border movements. One of the main characteristics of services is that they are intangible and invisible. Furthermore, services, unlike goods, cannot be stored. However, it must be taken into account, that GATS applies to any service, including their production, distribution, marketing, sales and delivery, apart from those supplied in the exercise of government authority. The GATS covers all major ways in which service suppliers serve their clients - the so-called "modes of supply". According to the GATS definition, provision of services from territory of one country into the territory of another, without any movement of persons, is considered as "cross-border supply" (e.g. money transfer through the banks, information and advice passing, cargo transportation), some types of granting supply of service in the territory of one country to the service consumer of another country (e.g. tourism, repair of ships in another country) is considered as "consumption abroad" according to the GATS definition. However, in the financial services this mode of delivery covers also all cases where a resident of one country purchases a financial service in another country. Therefore, there is no requirement to consume or supply service abroad. Besides, service supply could be carried out through establishment of commercial presence and temporary movement of natural persons to another country in order to provide the service there. 3. Differences between the restrictions on trade of goods and trade in services International trade in goods is relatively simple to grasp: a product is transported from one country to another. Trade in services is much more diverse. One of the main characteristics of services is that they are intangible and invisible. Telephone companies, banks, airlines and accountancy firms provide their services in quite different ways. Industries producing goods are generally protected by the introduction of tariffs or other border measures. But trade barriers in services take the form of national domestic regulations, prohibitions or quantitative restrictions on value and quantity of specific service import. One of the examples of trade barriers is the "economic needs" test (domestic laws or



regulations stipulating that foreign service providers may contest a market, if domestic providers do not exist or are unable to satisfy demand). The restrictions on market access can be imposed also through the monopoly situations, which in essence keep the market closed for a service supplier. 4. Importance of world trade liberalisation in services for transition and developing economies For developing and transition economies the potential gains of GATS membership will result primarily from liberalisation of access to their own markets. Government policy in regulation of services should concentrate on such concerns as growth of domestic productivity and increase the quality of supply of services. The availability of higher-quality and lower-cost services is promoting the local output of goods and makes them more competitive on the world market. In majority of developing countries the growth of the service industries has lagged behind that of the manufacturing sector. Thus, the development of an efficient and thriving services sectors is a high priority for many countries. At the same time, liberalisation in one services sector triggers off market access opportunities in others. The existence of good telecommunication facilities and an efficient transport network, for example, will increase foreign investment, which in turn will create openness and opportunities for other service activities such as construction, legal services, and accountancy. 5. Specific commitments of GATS member countries By the time of signing the Final Act of the Uruguay Round most of negotiating countries had submitted schedules of specific commitments in services and list of exemptions from the MFN principle. Since 1995, dozens of countries have become WTO members. They have also offered sectoral concessions in services to other members. Specific commitments do not represent general obligation, they apply only to services sectors included in the member's schedule and generally, guarantee access to country's market and spell out any limitations on market access and national treatment. Making Specific commitments means, that country cannot reverse liberalisation without compensating for it. According to the specific commitments assumed under the Uruguay Round by the participating countries, the highest sectoral offers were made by the high-income countries, that covers on average about 47 per cent of the GATS sector classification list (this list includes 155 sub-sectors of 12 branches of services), compared with 16 per cent for developing countries and 38.6 per cent for large developing states. These figures reflect that many low-income countries' commitments have covered a limited number of sectors. For instance, four countries made commitments only to one and five others only to two sub-sectors of services. The developing countries justified such passive stance with the argument that their local service industries are in process of formation, and the above commitments would create difficulties in promotion of these industries. At the same time, many of these countries are low-income with limited local market that reduced the interest and pressure of other countries to schedule more sectors. As for the transition economies (Czech Republic, Slovak Republic, Poland, Hungary), as the result of trade negotiations, they seemed to be among the most liberal markets in trade in services. Romania undertook fewer commitments. For evaluation of each member's specific commitments the World Bank expert B. Hoekman calculated the sectoral coverage of commitments. One of three numerical indicators was allocated to each element of a member's schedule: a 1 in all instances where "none" was stated for a sector-mode of supply, a 0 in all instances where members list "unbound" and a 0.5 in all instances where specific restrictions or limitations are listed for a sector-mode of supply. As table 2 shows, the industrial and Eastern European countries commitments sectoral coverage fluctuates between the 320-412, new industrialised countries indicator is around 140-311 margins and the indicator of small developing countries is less than 100. Although, the sectoral coverage indices do not fully reflect the actual



restrictiveness of policy. It is advisable to define the share of no-restriction provisions in total commitments. A substantial part, around 57 per cent, of commitments on market access of developed countries, implies no restriction, as compared to 45 per cent for low-income countries. Almost the same indices were calculated for national treatment (see Table 3). However, in total, the no-restriction provisions accounted for only 25 per cent of the maximum possible for high-income members, 7 per cent for low and middle-income countries and about 14 per cent for the large developing states, that really indicates that, despite of trade negotiations, the GATS members are quite far from the free trade in trade of services. The degree of coverage of world services market by these specific commitments is a different story. High-income countries are largest traders of services in the world (74.7 per cent on export side and 75.0 per cent on import side), thus their commitment on liberalisation of services market cover around half of global trade in services. The liberalisation of world services has started during the Uruguay Round, while the main steps of liberalisation were taken later. The sectoral negotiations on market access for basic telecommunications, movement of natural persons and financial services, and elaboration of some further developments were conducted in 1995-1997 period. All industrialised countries and some developing nations participating in the negotiations made concessions. Schedules of the specific commitments and the list of MFN exemptions undertaken by these countries were annexed to the second, third, fourth and fifth protocols to the GATS. Some of developing countries made sectoral commitments for the first time. During the negotiations on financial services in 1995 and 1997 most of WTO members improved their commitments on market access and national treatment. It means that countries with a share of world-wide trade in financial services of more than 95 per cent agreed to open their domestic financial markets to foreign suppliers on a permanent basis and guarantee non-discrimination operating conditions. Many WTO members have agreed to permit foreign financial institutions to establish a new commercial presence in various forms and expand their current commercial operations. As for the sectoral negotiation on basic telecommunications, 69 countries representing more than 93 per cent of world revenues in this industry made binding commitments. However, the dates of liberalisation of services vary from 1998 to 2011. Telecommunications are one of the largest and fastest growing sectors and today its market is estimated to be USD 600 billion that outlines the importance of market liberalisation. The negotiations on movement of natural persons were completed in 1995 and only modest results were achieved. Despite additional concessions assumed by WTO members on sectoral issues after Uruguay Round, the overall picture remains unchanged, most of the low-income countries are less inclined to offer market access and national treatment to foreign service providers, than more developed nations. During the trade negotiations, most of GATS members avoided taking commitments related to the presence of natural persons. In many cases commitments apply only to senior executives, managers or persons representing an advanced level of training and expertise and mainly are focused on employed persons and business visitors. It reflects the WTO members approach to scheduling commitments on Mode 4, to start from a general "unbound" which was then qualified by liberalisation commitments applying to specific types of persons (e.g. managers or service salesperson), movement (e.g. intra-corporate) and stays (e.g. seasonal or up to four years). However, the demand for temporary foreign workers in OECD countries has been increasing in recent years, as it helps to mitigate skill shortages and adjustment to changing market conditions in the country of destination. Basically, the highest specific commitments have been undertaken by GATS member countries (both developed and undeveloped) in the following fields: financial, transport, value-added, basic telecom, tourism, business (including computer-related services) and construction. In the last three sectors developing countries have serious export potential.



6. Georgia's specific commitments: comparison to other countries In spite of the fact that Georgia is a low-income country (USD 609 GDP per capita in 1999), the volume of the country's obligations assumed during the WTO accession process is comparable to that of high income countries. The coverage of Georgia's specific commitments is quite broad and includes 11 service sectors and 123 sub-sectors, while most of developing countries’ commitments include only few main sectors (on average 2-6 service sectors). (See Table 1). The overwhelming majority of specific commitments undertaken by Georgia on market access and national treatment implies no-restriction provision. In total, the share of no-restriction in possible maximum (155 activities multiplied by 4 modes of supply) is about 53 per cent, that significantly exceeds both the high and low income countries’ relevant commitments assumed during the Uruguay Round. As for the sectoral coverage of Georgia's scheduled commitments, calculated as a sum of the numerical indicators allocated to each cell of the country's schedule (0 for unbound, 0.5 for bound restrictions and 1 for no restriction), it totalled 333.5, that is about the same as other transition economies’ numbers of commitments and much more than that of developing countries. The broadest commitments out of possible maximum have been taken in the following fields: tourism, transport, telecommunications, financial and business services (see Table 4). At the same time, Georgia did not bind its policy on the fourth mode of supply for services (providing services by foreign natural persons through temporary residence in Georgia), except as indicated in horizontal section. The trade conditions for mode 4 tend to be much more restrictive than conditions under the rest of modes of supplies in most of GATS member countries. Georgia has already undertaken significant obligations during the process of accession to WTO. Even taking into account the results of sectoral negotiations on telecommunication and financial services conducted after Uruguay Round, Georgia is among the WTO member countries with less restrictive regime against foreign providers in terms of market access and national treatment conditions in trade in services. The policy of open doors in regard to the foreign services suppliers is followed by advanced transition economies. Such attitude is caused by their intention to accelerate the development of service sectors, which were quite suppressed during the communist period. In this regard attraction of foreign investments, modernisation of service industries and increase of their efficiency will contribute to the growth of competitiveness of local entities in all sectors of economy.

Appendix III: GEORGIA’S SPECIFIC COMMITMENTS IN TRADE IN SERVICES A SHORT COMPRARISON TO OTHER COUNTRIES

Table 1: Summary of specific commitments of GATS member countries, as of July 1999Country 1 2 3 4 5 6 7 8 9 10 11 12 Total Country 1 2 3 4 5 6 7 8 9 10 11 12 Total

Angola X X X 3 Mauritania X 1

Antigua and Barbuda X X X X X X 6 Mauritius X X X 3

Argentina X X X X X X 6 Mexico X X X X X X X X X X 10

Autralia X X X X X X X X X X X 11 Mongolia 6

Austria X X X X X X X X X X X X 12 Marocco X X X X X X 7

Bahrain X 1 Mozambique X 1

Bangladesh X X 2 Myanmer X X 2

Barbados X X X X 4 Namibia X X 2

Belize X X X 3 New zealend X X X X X X X X 8

Benin X X X X 4 Nicaragua X X X X X 5

Bolovia X X X X 4 Niger X X 2

Botswana X X X 3 Nigeria X X X X 4

Brazil X X X X X X X 7 Norway X X X x X X x X X X 10

Brunei X X X X 4 Pakistan X X X X X X 6

Bulgaria X X X X X X X X X X X 11 Panama X X X X X X X X X X X 11

Burkina Faso X 1 Papua New Guinea X X X X X X 6

Burundi X X X X X 5 Paraguay X X 2

Cameroon X X 2 Peru X X X X X X X 7

Canada X X X X X X X X 8 Phillippines X X X X X 5

Central African Rep. X X X X X 5 Poland X X X X X X X X X X 10

Chad X 1 Qatar X X X X X X 6

Chile X X X X X 5 Romania X X X X X X X X 8

Colombia X X X X X X 6 Rwanda X X X X X 5

Congo X X 2 Saint Kitts & Nevis X X X X X 5

Congo RP X X X X X X 6 Saint Lucia X X X X X 5

Costa Rica X X X X X X 6 Saint Vinc. & Gren. X X X X X 5

Cote d'ivoire X X X X X 5 Senegal X X X X X X X 7

Cuba X X X X X X X 7 Sierra Leone X X X X X X X X X X 10

Cyprus X X X 3 Singapore X X X X X X X 7

Czech Republic X X X X X X X X X 9 Slovak Republic X X X X X X X X X 9

Djibuti X X X X 4 Slovenia X X X X X X X X X X X 11

Dominica X X X X 4 Solomon Islands X X X X 4

Diminican Rep. X X X X X X 6 South Africa X X X X X X X X X 9

Ecuador X X X X X X X X X X 10 Sri lanka X X X 3

Egypt X X X X 4 Suriname X X X 3

El Salvador X X X X X X 6 Swaziland X X X 3

European community X X X X X X X X X X X X 12 Sweden X X X X X X X X X 9

Fiji X 1 Switzerland X X X X X X X X X X 10

Finland X X X X X X X X X 9 Tanzania X 1

Gabon X X X X 4 Thailand X X X x X X X X X X 10

Gambia X X X X X X X X X X X X 12 Togo X X X 3

Ghana X X X X X X 6 Trinidad and Tobago X X X X X X x X X 9

Grenada X X X X 4 Tunisia X X X 3

Guatemala X X X X X 5 Turkey X X X X X X X X X 9

Guinea X X X X X 5 Uganda X X 2

Guinea-Bissau X X 2 United Arab Emirates X X X X X X 6

Guyana X X X X X 5 Uruguay X X X X X X 6

Haiti X X X X X 5 USA X X X X X X X X X X X 11

Honduras X X X X 4 Venezuela X X X X X X X X 8

Hong Kong X X X X X X X X 8 Zambia X X X X 4

Hungary X X X X X X X X X X 10 Zimbabwe X X X 3

Iceland X X X X X X X X X 9 Total 89 85 60 38 32 40 91 34 114 49 70 9 711

India X X X X X X 6

Indonesia X X X X X X 6

Israel X X X X X 5 1 2 3 4 5 6 7 8 9 10 11 12 total

Jamaica X X X X X X X X 8 GEORGIA: X X X X X X X X X X X 11

Japan X X X X X X X X X X X 11

Kenya X X X X X 5 Note: X--- Denotes that GATS member country takes specific commitments in the following

Korea RP X X X X X X X X 8 sector of services

Kuwait X X X X X X X X 8 Legend: 1---- Business Services

Kyrgyz Republic X X X X X X X X X X X 11 2--- Commucication Services

Latvia X X X X X X X X X X X 11 3--- Construction and Related Engineering Services

Lesotho X X X X X X X X X X 10 4--- Distribution Services

Liechtenstein X X X X X X X X X 9 5--- Education Services

Macau X X X 3 6--- Environment Services

Madagascar X 1 7--- Financial Services

Malawi X X X X X 5 8--- Health Related and Social services

Malaysia X X X X X X X X X 9 9--- Tourism and Travel Related Services

Maldives X 1 10--- Recreational, cultural and sporting services

Mali X X 2 11--- Transport Services

Malta X X X 3 12--- Other Services not included Elsewhere

Source: WTO Secretariat


Table 2: GATS members: number of commitments scheduled Low and middle Sectoral Low and middle Sectoral

income countries coverage income countries coverage

Algeria 4 Nigeria 96Antigua and Barbuda 68 Pakistan 108Argentina 208 Paraguay 36Bahrain 16 Peru 96Bangladesh 4 Phillippines 160Belize 8 Poland 212Benin 44 Romania 176Bolivia 24 Saint Lucia 32Brazil 156 Saint Vinc. & Gren. 32Burkina Faso 8 Senegal 104Cameroon 12 Slovak Republic 308Chile 140 South Africa 288China 196 Sri lanka 8Colombia 164 Suriname 16Congo 16 Swaziland 36Costa Rica 52 Tanzania 4Cote d'ivoire 56 Thailand 260Cuba 120 Trinidad and Tobago 68Czech Republic 304 Tunisia 52Dominica 20 Turkey 276Dominican Rep. 264 Uganda 8Egypt 104 Uruguay 96El Salvador 92 Venezuela 156Fiji 4 Zambia 64Gabon 44 Zimbabwe 72Ghana 100Grenada 20 High-income Sectoral

Guatemala 40 countries coverage

Guyana 72 Australia 360Honduras 64 Austria 412Hungary 336 Canada 352India 132 Cyprus 36Indonesia 140 European Union 392Jamaica 140 Finland 328Kenya 128 Hong Kong 200Korea RP 84 Iceland 372Madagascar 8 Israel 180Malaysia 256 Japan 408Malta 28 Kuwait 176Mauritius 43 New Zealand 276Mexico 252 Norway 360Marocco 144 Singapore 232Mozambique 48 Sweden 320Namibia 12 Switzerland 400Nicaragua 196 Liectentein 312Niger 20 United States 384

Sources: The Uruguay Round and the developing countries, The World Bank, 1996.

Knowlodge for development, World Development report, 1998/1999


Table 3: No restriction sectoral specific commitments of WTO member countries (percent)High-income Low and middle- Large developing Georgia

countries income countries countriesMarket accessNo restrictions as a share of total offer (unweighted count) 57.3 45.5 38.7 97.6No restrictions as a share of maximum possible 27.1 7.3 14.9 53

National accountsNo restrictions as a share of total offer (unweighted count) 65.1 58 52.3 98.8No restrictions as a share of maximum possible 30.8 9.4 20.2 53.7

No restrictions on market access and national treatment as a shareof maximum possible 24.8 6.9 14.3 53.3Source: The Uruguay Round and the developing countries, The World Bank, 1996.

Calculation of Georgia's figures was made by the author on the ground of Georgia's specific commitments


Table 4: Commitments by sectorsISIC Numbers of GATS

sectors and modes of supply

High-income countries

Low and middle income

countries

Georgia High-income countries

Low and middle income

countries

Georgia

Construction 20 11.2 3.3 18 56 16.5 90Wholesale trade 8 4.6 0.5 3 57.5 6.3 37.5Retail trade 8 4.4 0.8 3 55 10 37.5Hotels, restaurants 4 2.8 2.8 4 70 70 100Land transport 40 9.4 2.3 10 23.5 5.8 25Water transport 48 4.4 3 10 9.2 6.3 20.8Air transport 20 3.7 1.5 5 18.5 7.5 25Auxiliary transport 20 5.1 1.3 10 25.5 6.5 50Postal 4 1.3 0.6 0 32.5 15 0Basic telecom 28 1.5 1.3 21 5.4 4.6 75Value-added telecom 28 18.7 5 21 66.8 17.8 75Financial 60 31.3 12.4 36 52.2 20.6 60Real estate 8 3.5 0.3 6 43.8 3.8 75Rental activities 20 9.5 1.3 12 47.5 6.5 60Computer-related 20 15.5 4.2 15 77.5 21 75Reasearch and 12 4.1 1 9 34.2 8.3 75developmentRefuse Disposal 16 8.8 1 8 55 6.3 50Education 20 4.7 1.3 12 23.5 6.5 60Health and social 24 5 1.9 7 20.8 7.9 29.1Recreation, culture 48 13.3 4.6 12 27.9 9.6 25Source: The Uruguay Round and the developing countries, The World Bank, 1996.

Calculation of Georgia's figures was made by the author on the ground of Georgia's specific commitments

Commitments/GATS items (per cent)Average number of commitments

STATISTICAL APPENDIX


CONTENTS *

Table A4.1: Accounts of the National Bank of Georgia Table A4.2: Consolidated Accounts of Commercial Banks Table A4.3: Monetary Survey Table A4.4: Nominal and Real Exchange Rates of Lari Table A6.1: Establishment of JSCs by Sector, as of 1st July, 2000 Table A6.2: Small Enterprise Privatisation by Sector, as of 1st July, 2000 Table A6.3: Establishment of JSCs by Region, as of 1st July, 2000 Table A6.4: Small Privatisation by Region, as of 1st July, 2000 Table A7.1: Economic Status, Q1 1998 – Q2 2000

* Note: First digit in the number of an appendix table indicates the number of the chapter to which it belongs.

Table A7.1: Economic Status, Q1 1998 - Q2 2000(Thousend)

Q I 1998 Q II 1998 Q III 1998 Q IV 1998 Q I 1999 Q II 1999 Q III 1999 Q IV 1999 Q I 2000 Q II 2000

Total population over 15 years old 3, 099 3, 136 3, 194 3, 008 3, 032 3, 049 3, 092 3, 018 3, 123 3, 151

Total economically active population (labour force) (1) 2 ,332 2, 462 2,146 1,990 2, 018 2, 052 2, 058 1, 917 1, 951 2, 102Total economically active population (labour force) (2) 2 ,457 2 ,555 2,195 2,042 2, 058 2, 093 2, 106 1, 975 2, 087 2, 199 Employed 2, 101 2 ,283 1,887 1,741 1, 725 1, 784 1, 792 1, 633 1, 705 1, 890 Hired 714 737 786 741 737 743 741 710 679 695 Self-employed 1, 387 1 ,546 1,092 990 973 1, 023 1, 030 905 912 1087 Unemployed (1) 231 179 260 249 292 268 266 284 246 212 Unemployed (2) 356 272 309 301 333 308 314 342 382 309Unemployment rate (per cent) (1) 9.9 7.3 12.1 12.5 14.5 13.0 12.9 14.8 12.6 10.1Unemployment rate (per cent) (2) 14.5 10.6 14.1 14.7 16.2 14.7 14.9 17.3 18.3 14.0

Labour force participation rate 75.3 78.5 67.2 66.2 66.6 67.3 66.6 63.5 62.5 63.9Self-employment share in total labour force 59.5 62.8 50.9 49.7 48.2 49.8 50.1 47.2 46.7 51.7Self-employment share in total employment 66.0 67.7 57.8 56.9 56.4 57.3 57.5 55.4 53.5 57.5

Table A4.2: Consolidated Accounts of Commercial Banks (GEL thousands)

1999 2000

Dec Jan Feb Mar Apr May Jun Jul Aug

Net Foreign Assets -6,335 -25,192 -10,758 -15,368 -24,397 -10,465 -229 11,309 15,742

Foreign exchange 93,134 75,748 90,123 84,823 78,089 93,948 105,655 119,258 122,748

Foreign currency liabilities -100,049 -101,532 -101,477 -100,365 -102,644 -104,571 -106,041 -108,097 -107,154

Other foreign assets (net) (1) 580 593 595 174 158 158 157 149 149

Net Domestic Assets 206,901 232,883 224,134 230,316 242,956 254,609 246,208 258,284 276,758

Domestic Credit 312,587 320,420 318,794 311,670 338,639 339,896 356,332 374,024 386,954

Net Claims on General Government -14,594 -16,515 -15,404 -20,148 -16,610 -16,599 -18,591 -15,915 -16,198

Claims on the Rest of the Economy 327,181 336,935 334,198 331,818 355,249 356,495 374,923 389,939 403,151

Claims on Enterprises (GEL) 62,480 61,238 58,334 55,632 53,212 52,188 53,653 65,236 56,645

Claims on Individuals (GEL) 29,840 24,987 25,525 27,259 28,117 27,577 28,707 30,181 29,427

Other claims 0 0 0 0 0 0 0 0 0

Foreign Currency Loans 234,861 250,710 250,339 248,927 273,920 276,730 292,563 303,522 317,080

Other Assets Net -105,686 -87,537 -94,660 -81,354 -95,683 -85,287 -110,124 -115,739 -110,196

Deposit Liabilities 200,566 207,691 213,376 214,948 218,559 244,144 245,979 269,594 292,500

GEL Deposits 42,139 44,503 49,769 50,418 41,819 48,800 46,341 56,323 62,157

Of which: Enterprises' Current A/Cs 30,355 33,119 38,522 39,155 30,182 37,987 34,994 41,891 46,054

Foreign Currency Deposits 158,427 163,188 163,607 164,530 176,740 195,344 199,638 213,270 230,343

Source: National Bank of GeorgiaNote: (1) Includes Gold and RUR denominated net foreign assets

Table A4.3: Monetary Survey (GEL thousands)

1999 2000

Dec Jan Feb Mar Apr May Jun Jul Aug

Net Foreign Assets -375,742 -400,554 -384,048 -446,110 -466,672 -456,892 -446,555 -412,547 -374,921

Foreign exchange 341,077 311,579 321,943 322,183 295,252 311,686 321,161 334,947 361,469

Foreign liabilities -718,437 -713,765 -707,624 -769,455 -763,070 -769,724 -768,925 -748,695 -737,591

Other foreign assets (net) (1) 1,618 1,632 1,634 1,162 1,146 1,146 1,209 1,201 1,201

Net Domestic Assets 820,306 835,777 822,535 894,703 926,464 932,104 926,871 938,903 930,329

Domestic Credit 1,007,634 1,022,065 1,018,194 1,049,073 1,095,355 1,101,059 1,119,780 1,141,754 1,156,715

Net Claims on General Government 680,453 685,130 683,997 639,981 664,273 667,365 665,240 673,968 678,365

Net Claims on Republican Government 688,709 692,944 693,263 650,117 674,256 676,876 675,941 685,725 691,601

Net Claims on Local Government -3,876 -4,537 -4,885 -5,916 -4,313 -4,866 -4,788 -4,481 -4,977

Net Claims on Pension Fund -1,907 -1,616 -970 -1,608 -1,849 -1,415 -1,962 -1,688 -1,229

Other Extra-Budgetary Funds -2,473 -1,660 -3,411 -2,612 -3,822 -3,230 -3,951 -5,588 -7,031

Claims on the Rest of the Economy 327,181 336,935 334,198 409,092 431,082 433,694 454,540 467,786 478,350

Other items, net -187,328 -186,288 -195,660 -154,370 -168,892 -168,955 -192,908 -202,851 -226,386

Broad Money (M3) 444,562 435,223 438,487 448,593 459,791 475,212 480,316 526,416 555,408

Broad Money, excl. foreign currency deposits (M2) 286,135 272,035 274,880 284,063 283,051 279,868 280,678 313,145 325,066

Currency in circulation 259,772 245,431 237,761 249,168 254,188 246,571 249,040 270,072 280,189

Currency outside banks (MO) 243,997 227,532 225,112 233,645 241,233 231,068 234,337 256,822 262,908

Cash in commercial banks 15,774 17,898 12,650 15,523 12,955 15,503 14,703 13,250 17,281

Deposit Liabilities (GEL) 42,139 44,503 49,769 50,418 41,819 48,800 46,341 56,323 62,157

Foreign Currency Deposits 158,427 163,188 163,607 164,530 176,740 195,344 199,638 213,270 230,343

Source: National Bank of GeorgiaNotes: (1) Includes Gold and RUR denominated net foreign assets

Table A4.4: Nominal and Real Exchange Rates of Lari

Nominal Exchange Rate (1) Consumer Price Index Exchange Rate Indexes

December 1994=100

GEL/USD RUR/GEL Georgia USA Russia GEL/USD GEL/RUR

TICEX FXB TICEX FXB Nominal Real Nominal Real1999 Jan 2.1200 2.1400 10,764 10,989 208.37 109.75 398.99 137.04 72.18 19.57 37.48

Feb 2.3500 2.3900 9,747 8,000 213.41 109.89 403.09 153.05 78.80 26.89 50.79Mar 2.2150 2.2250 11,161 10,929 215.29 110.22 405.89 142.48 72.94 19.68 37.11Apr 1.9400 1.9800 12,500 11,696 216.59 111.02 407.29 126.79 64.99 18.39 34.58May 1.9900 1.9855 12,422 12,121 214.96 111.02 405.51 127.14 65.67 17.75 33.48Jun 1.9400 1.9475 12,484 12,571 213.52 111.02 403.93 124.71 64.84 17.11 32.37Jul 1.8200 1.7850 13,316 13,605 211.39 111.36 499.83 114.30 60.21 15.81 37.38Aug 1.8500 1.8600 13,928 13,559 211.38 111.62 505.68 119.11 62.90 15.86 37.95Sep 1.8500 1.8550 13,624 13,559 212.34 112.16 513.10 118.79 62.74 15.86 38.33Oct 1.8800 1.9650 13,928 13,423 212.84 112.36 520.13 125.83 66.43 16.02 39.16Nov 2.0000 2.0225 13,477 13,245 215.24 112.42 526.38 129.51 67.65 16.24 39.72Dec 1.9600 2.0000 14,245 13,889 216.50 112.42 533.02 128.07 66.51 15.49 38.13

2000 Jan 2.0500 2.0300 13,947 14,184 216.54 112.45 553.07 129.99 67.51 15.16 38.73Feb 1.9500 1.9650 14,706 14,388 216.52 112.50 553.08 125.83 65.38 14.95 38.19Mar 1.9300 1.9425 14,881 14,430 216.51 112.57 554.40 124.39 64.67 14.91 38.17Apr 1.9700 2.0225 14,451 14,184 216.31 114.43 556.02 129.51 68.51 15.16 38.98May 1.9730 1.9725 14,327 14,235 216.21 114.56 568.44 126.31 66.93 15.11 39.73Jun 1.9601 1.9555 14,327 14,545 215.91 115.16 586.95 125.22 66.79 14.79 40.20Jul 1.9730 1.9625 14,124 14,420 215.61 115.43 597.26 125.67 67.28 14.92 41.32Aug 1.9600 1.9700 14,164 14,235 216.81 115.43 598.77 126.15 67.16 15.11 41.73

Sources: Nominal Exchange rates - National Bank of GeorgiaCPI: Georgia - State Department for Statistics; USA - Government of the USA, Department of Labor, Bureau of Labor Statistics Data; Russia - Russian Economic Trends;

Table A6.1: Establishment of JSCs by sector as of 1st July,2000

Sector Approved EstablishedEstablished in

2000

Manufacturing 196 187 2

Mining and chemicals 31 25 0

Bread products 61 24 0

Agriculture and food 388 338 5

Architecture and construction 226 221 0

Retail and Wholesale Trade 86 71 1

Oil products 49 27 1

Gas 58 46 1

Transport 118 114 1

Social sphere 57 58 13

Energy sector 64 109 10

Total 1,334 1,220 34

Source: Ministry of State Property Management

Table A6.2: Small Enterprise Privatisation by Sector as of 1st July, 2000

Sector Approved Privatised% of total privatised

Privatised in 2000

1 Manufacturing 373 291 2.0 2

2 Energy 46 42 0.3 5

3 Bread products 140 114 0.8 3

4 Agriculture & food 699 691 4.7 36

5 Construction 407 317 2.1 2

6 Trade 4,641 5,208 35.3 39

7 Services 5,478 6,539 44.3 177

8 Oil products 171 171 1.2 -

9 Health 775 594 4.0 3

10 Social sphere 319 607 4.1 13

11 Transport 158 182 1.2 10

Total 13,207 14,756 100.0 290


Table A6.3: Establishment of JSCs by Region, as of 1st July, 2000(Number of enterprises)

RegionApproved for

privatisation

Total number of

established and

registered JSCs

Abkhazia 34 0

Achara 86 34Tbilisi 392 397Guria 55 52

Lanchkhuti 12 11

Ozurgeti 34 33Chokhatauri 9 8Racha-Lechkhumi and

lower Svaneti 12 8

Ambrolauri 6 3

Lentekhi 2 2

Oni 1 1Tsageri 3 2Samegrelo and upper

Svaneti 168 170

Abasha 9 9

Zugdidi 49 49

Martvili 12 13

Mestia 1 0

Senaki 25 27

Chkhorotsku 14 14

Tsalenjikha 21 21

Khobi 12 13Poti 25 24Imereti 224 213

Kutaisi 75 71

Tkibuli 16 16

Tskaltubo 18 13

Chiatura 15 14

Bagdati 10 10

Vani 11 11

Zestafoni 24 24

Terjola 16 16

Samtredia 17 17

Sachkhere 4 4

Kharagauli 7 6Khoni 11 11Kakheti 112 104

Akhmeta 11 13

Gurjaani 22 20

Dedoplistskaro 8 8

Telavi 26 23

Lagodekhi 10 10

Sagarejo 13 13

Signagi 13 10Kvareli 9 7Mtsketa-Tianeti 41 41

Akhalgori 1 1

Dusheti 12 12

Tianeti 2 2

Mtslheta 23 23Kazbegi 3 3Samtskhe-Javakheti 47 43

Adigeni 2 2

Aspindza 3 1

Akhalkalaki 8 8

Akhaltsikhe 13 14

Borjomi 20 17Ninotsminda 1 1Kvemo Kartli 97 92

Rustavi 33 33

Bolnisi 9 7

Gardabani 19 21

Dmanisi 6 2

Tetritskaro 11 10

Marneuli 17 17Tsalka 2 2Shida Kartli 66 66

Tskhinvali 0 0

Gori 30 30

Kaspi 14 14

Kareli 9 9

Khashuri 13 13Java 0 0

Total 1,334 1,220


Note: This table represents in the first column enterprises approved for privatisation, and

in the second those that have actually been valued and established as joint-stock companies.

It does not represent enterprises actually privatised. The numbers in the second column can exceed

those in the first since some enterprises are split up when being corporatised.

Table A6.4: Small Privatisation by Region, as of 1st July, 2000(Number of enterprises)

Region

Approved

for

privatisation

Total

privatised or

liquidated

2000

Merged with

medium or

large

enterprises

Liquidated

Abkhazia 2 - - - - Achara 309 159 - 21 - Tbilisi 4,467 4,656 153 412 -

Guria 310 412 - 3 71 Lanchkhuti 60 85 - - 17 Ozurgeti 193 234 - 3 40 Chokhatauri 57 93 - - 14 Racha-Lechkhumi and

lower Svaneti 165 240 - 2 50 Ambrolauri 58 89 - 1 18 Lentekhi 32 39 - - 23 Oni 44 55 - 1 9 Tsageri 31 57 - - -

Samegrelo and upper

Svaneti 1,097 1,452 6 184 278 Abasha 86 91 - 3 13 Zugdidi 209 264 - 7 - Martvili 52 51 - 2 19 Mestia 12 24 - 3 3 Senaki 248 428 1 140 104 Chkhorotsku 39 54 - - 23 Tsalenjikha 50 62 2 15 15 Khobi 145 128 - 2 59 Poti 256 350 3 12 42 Imereti 2,643 2,846 36 185 581 Kutaisi 606 730 - 71 211 Tkibuli 222 184 - - 49 Tskaltubo 265 294 11 10 28 Chiatura 227 288 12 68 44 Bagdati 68 107 3 - 36 Vani 68 98 5 1 17 Zestafoni 410 358 - 12 52 Terjola 131 147 - - 20 Samtredia 425 413 4 19 59 Sachkhere 93 78 - - 16 Kharagauli 65 61 1 3 14 Khoni 63 88 - 1 35 Kakheti 1,057 1,208 9 71 182 Akhmeta 176 173 - 18 28 Gurjaani 134 149 - 13 19 Dedoplistskaro 82 100 1 34 3 Telavi 212 248 6 3 36 Lagodekhi 69 68 2 - 15 Sagarejo 128 123 - 3 10 Signagi 134 214 - - 34 Kvareli 122 133 - - 37 Mtsketa-Tianeti 306 344 7 21 71 Akhalgori 17 18 - - 5 Dusheti 85 109 5 1 12 Tianeti 55 56 2 8 12 Mtslheta 123 144 - 12 42 Kazbegi 26 17 - - - Samtskhe-Javakheti 568 803 17 9 95 Adigeni 74 84 9 - 5 Aspindza 29 38 - 1 - Akhalkalaki 54 80 1 1 10 Akhaltsikhe 242 346 1 7 56 Borjomi 143 237 6 - 20 Ninotsminda 26 18 - - 4 Kvemo Kartli 1,105 1,353 35 20 154 Rustavi 352 418 - 4 60 Bolnisi 60 85 - 6 - Gardabani 253 252 - - 36 Dmanisi 17 104 - - 7 Tetritskaro 111 196 32 4 17 Marneuli 280 261 - 6 10 Tsalka 32 37 3 - 24 Shida Kartli 807 912 14 47 161 Tskhinvali - 5 - 5 - Gori 296 349 - 19 52 Kaspi 196 144 9 - 15 Kareli 138 165 - - 62 Khashuri 177 249 5 23 32 Java - - - - - MSPM 371 371 13 - -

Total 13,207 14,756 290 975 1,643

Source: Ministry of State Property ManagementNote: Number of enterprises actually privatised can exceed those approved for privatisation since some

are split up during corporatisation.

Table A7.1: Economic Status, Q1 1998 - Q2 2000(Thousend)

Q I 1998 Q II 1998 Q III 1998 Q IV 1998 Q I 1999 Q II 1999 Q III 1999 Q IV 1999 Q I 2000 Q II 2000

Total population over 15 years old 3, 099 3, 136 3, 194 3, 008 3, 032 3, 049 3, 092 3, 018 3, 123 3, 151

Total economically active population (labour force) (1) 2 ,332 2, 462 2,146 1,990 2, 018 2, 052 2, 058 1, 917 1, 951 2, 102Total economically active population (labour force) (2) 2 ,457 2 ,555 2,195 2,042 2, 058 2, 093 2, 106 1, 975 2, 087 2, 199 Employed 2, 101 2 ,283 1,887 1,741 1, 725 1, 784 1, 792 1, 633 1, 705 1, 890 Hired 714 737 786 741 737 743 741 710 679 695 Self-employed 1, 387 1 ,546 1,092 990 973 1, 023 1, 030 905 912 1087 Unemployed (1) 231 179 260 249 292 268 266 284 246 212 Unemployed (2) 356 272 309 301 333 308 314 342 382 309Unemployment rate (per cent) (1) 9.9 7.3 12.1 12.5 14.5 13.0 12.9 14.8 12.6 10.1Unemployment rate (per cent) (2) 14.5 10.6 14.1 14.7 16.2 14.7 14.9 17.3 18.3 14.0

Labour force participation rate 75.3 78.5 67.2 66.2 66.6 67.3 66.6 63.5 62.5 63.9Self-employment share in total labour force 59.5 62.8 50.9 49.7 48.2 49.8 50.1 47.2 46.7 51.7Self-employment share in total employment 66.0 67.7 57.8 56.9 56.4 57.3 57.5 55.4 53.5 57.5

ABBREVIATIONS


ACDI Agricultural Co-operative Development International BSEC Black Sea Economic Co-operation CASE Centre for Social and Economic Research CIS Commonwealth of Independent States CPI Consumer Price Index DMB Deposit Money Bank (Commercial Bank) EBRD European Bank for Reconstruction and Development ECU European Currency Unit ESAF IMF Enhanced Structural Adjustment Facility EU European Union EUR Euro FAO Food and Agricultural Organisation FDI Foreign Direct Investment FSU Former Soviet Union FXB Foreign Exchange Bureau (x) GATS General Agreement on Trade in Services GATT General Agreement on Tariffs and Trade GCT General Customs Tariff GDP Gross Domestic Product GEL Georgian Lari GEPA Georgian Export Promotion Agency GEPLAC Georgian-European Policy and Legal Advice Centre GET Georgian Economic Trends GNP Gross National Product GSP General System of Preferences H Half year ha hectares IDP Internally Displaced Person ILO International Labour Organisation IMF International Monetary Fund IFAD International Fund for Agricultural Development ISIC International Standard Industrial Classification JPY Japanese Yen JSC Joint Stock Company KWh Kilowatt hour LFS Labour Force Survey MFA Multi-fiber Agreement MFN Most Favoured Nations status MoF Ministry of Finance MoHSS Ministry of Healthcare and Social Safety MoLSA Ministry of Labour and Social Affairs MSPM Ministry of State Property Management MWh Megawatt hour NBG National Bank of Georgia NDA Net Domestic Assets NFA Net Foreign Assets NMP Net Material Product OECD Organisation for Economic Co-operation and Development PAYG Pay-as-you-go pension system

ABBREVIATIONS


PCA Partnership and Co-operation Agreement PPI Producer Price Index PSI Pre-shipment inspection Q Quarter year RM Reserve Money RUR Russian Ruble SAC World Bank Structural Adjustment Credit SCD State Customs Department SDR Special Drawing Rights SDS State Department for Statistics STI State Tax Inspectorate TBT Technical Barriers on Trade agreement TICEX Tbilisi Interbank Currency Exchange TRACECA Transport Corridor Europe-Caucasia-Asia TRIMs Trade-Related Investment Measures TRIPS Intellectual Property Rights TRL Turkish Lira UNDP United Nations Development Program USAID United States Agency for International Development USD United States Dollar USSSF United State Social Safety Fund VAT Value Added Tax WTO World Trade Organisation

Documents

Contents · 2013. 8. 5. · public and private organisations including advice and training, developing and reforming legal and regulatory frameworks, institutions and organisations,