by Diana Petriashvili
Like other former Soviet republics, including Armenia, Georgia faced severe economic crises after the collapse of the Soviet Union. By 1992, total economic output went down by 70 percent. In the past decade marginal improvements have been seen but, still, production is only 40 percent of the index of 1989.
And like conditions for its neighbor to the south, conflict has played a role in Georgia's efforts to survive being orphaned by Mother Russia. But unlike Armenia's fight with Azerbaijan over Karabakh, wars in Georgia were internal: South Ossetia in 1991 and Abkhazia, 1992.
When Eduard Shevardnadze came to power in 1992, he managed to stop Georgia's economic hemorrhaging. Shevardnadze exploited connections of his prior post as Minister of Foreign Affairs of the Soviet Union, and oversaw a government that decreased inflation, stabilized the national currency (lari), adopted laws on commercial banking and conducted land and tax reforms. His name is reasonably attached with Georgia's successful negotiation of the Baku-Tbilis-Ceyhan oil pipeline.
Though still far from matching conditions enjoyed during Soviet times, by 1998, Georgia was able to meet most targets of the International Monetary Fund. Even after his resignation, Shevardnadze stressed that the country's economic life was saved during his 11-year reign: More than 10,500 small enterprises were privatized and more than 1,200 medium and large companies were set up as joint stock operations.
But over the past six years, the leveling off to an unacceptable low of Georgia's economy was among reasons (human rights and standard of living being his greatest shortcoming) why Shevardnadze was relegated to an inglorious forced retirement from political life.
While the former president's resume may rightly include advances in Georgia's business life, it should be remembered that, again like Armenia, Georgia is primarily a country of farmers. According to the Ministry of Agriculture, two-thirds of the republic's able-bodied population is engaged in agriculture. But despite the high percentage, agricultural export remains low.
According to state statistics, grain production grew by about 10 percent last year compared to 2002. But because of harsh spring weather, this year's crops were down from the previous year, including grape harvests, which were expected to be off by 15 to 20 percent from the 200,000 tons of 2003.
Grapes and wine are Georgia's second leading export, accounting for about $36 million in revenue last year, behind scrap metal export, at about $56 million. Overall exports - including scrap metal, wine, sugar, fertilizer, mineral water - totaled about $440 million.
Two-thirds of its population produces goods that make up only 30 percent of Georgia's economy.
Crops spoil in the field because farmers either cannot get their produce to market or must pay production costs that drive market prices above those for imported goods. Tea, hazelnut, and citrus production have suffered greatly as a result of the conflict in Abkhazia, an especially fertile area.
Georgian agricultural production is beginning to recover following the devastation caused by civil unrest and necessary restructuring following the breakup of the Soviet Union. Livestock production is beginning to rebound, although it faces periodic disease. Domestic grain production is increasing and will require sustained political and infrastructure improvements to ensure appropriate distribution and return to farmers.
In concert with European assistance, Georgia has taken steps to control quality and appropriately market its natural spring water. Georgian viniculture, well supported during Soviet times, is internationally acclaimed and has profited from new technologies and financing since 1994.
According to recent opinion polls, unemployment is considered the most urgent problem for the citizens of Georgia. In rural areas 26 percent are unemployed; compared with 30 to 40 percent (depending on the season) unemployed in the capital, Tbilisi. Two thirds of those unemployed (nation-wide) have university degrees.
Having a job in Georgia does not guarantee security. Salaries are generally below an amount sufficient for covering basic living needs. It was such conditions that influenced the fall of Shevardnaze and the rise of Mikhail Saakashvili.
The young and determined new president of Georgia is among those who find parallels between the republic's poor economy and its fertile environment for corruption. Within days after taking office on January 4, Saakashvili began a cleanup campaign that started in the capital, targeting businessmen and heads of state companies.
Akaki Chkhaidze, the director general of the Georgian Railways, Gia Jokhtaberidze, the owner of the Magticom, Georgian-American mobile telephone company, David Kivlaidze, former Minister of Agriculture, and many others were arrested and blamed for the misappropriation of state funds.
The new administration redirected funds equaling some 40 million lari (about $20 million) to the state budget, as compensation for money illegally pocketed by businessmen who were under the protection of the previous government.
But other economic troubles appeared after the new authorities came into power in Georgia. The economic situation might become even more difficult as these new problems are added to those already existing in Georgia. Tensions in Ajaria, Abkhazia and South Ossetia, present additional challenges.
"No serious businessmen will invest in a country experiencing military confrontation," says Niko Orvelashvili, president of the International Center on Reforms and Economic Development of Georgia. Orvelashvili also considers that the fight against corruption brings its negative impact as well.
"I've studied several cases of those businessmen blamed for corruption. The majority of cases were not well-grounded by the prosecutor general's office," he says. "This irresponsibility creates obstacles for productive business activities of both local and foreign businessmen"
Irakli Rekhviashvili, the former Minister of Economy of Georgia declared on May 1 that because of tensions in Ajaria, Georgia was losing 250,000 to 350,000 lari ($125,000 - 175,000) a day.
"The damage stems from the problems created in such fields as trade, transport conveyances and tourism," Rekhviashvili stressed. "Georgia is losing international assistance and investments. Its GDP will decrease drastically, instead of reaching the projected growth level of six percent."
Another economy expert, Irakli Melashvili considers that the present government of Georgia is "inexcusably passive" about the development of the country's economy. Melashvili says a group of Georgian economists created a detailed plan of actions for the development of the economic sector. The plan, presented to the Prime Minister of Georgia in December 2003, included top-priority activities aimed at rehabilitation of the economy.
The authors of the plan suggested, among other changes, to work out a new and improved tax code and to start mechanisms for protection of property rights.
We also insisted on the change of the state property management system and highlighted the necessity of creating financial instruments for environmental protection," Melashvili said, adding that the government practically ignored the document. Nor has the new administration adopted such proposals.
Six months into the new government, the architects of the "Rose Revolution" were already facing other skepticism. Specifically, Saakashvili's administration was under fire for its failure to state concretely how the $20 million corruption compensation allotment would be spent.
Further, the administration drew criticism for its youthfulness. In a region accustomed to legislation by grandfathers, the majority of Georgia's ministers are in their '30s.
The appointment of Kakha Bendukidze, the Russian industrial mogul as Georgia's Minister of Economy in June, still causes arguments. The main motivation for this appointment was that Bendukidze could attract investments to Georgia from Russia and promote a thaw between the republics.
Bendukidze, a native Georgian, has been in private business in Russia since 1990. Gross revenue from his various enterprises is said to reach $1 billion a year. Upon his appointment Bendukidze said he would espouse a highly liberal deregulation policy to help his cash-strapped country revive its corruption-crippled economy. He said Georgia should become a magnet for foreign investments.
We will do our best to ensure that foreign investors feel comfortable in our country," Bendukidze told journalists.
Georgian Prime Minister Zurab Zhvania commented on this appointment saying that "such an experienced expert and innovative businessman as Bendukidze will be a serious step on the way towards reforming Georgia's economy".
When he arrived in Tbilisi June 2, Bendukidze told journalists that Georgia should sell everything it could, except its conscience. According to him, even the strategic port of Batumi (Autonomous Republic of Ajaria) shouldn't be an exception. The new minister strongly believes that only deep privatization will strengthen the economy.
"There are a few facilities that shouldn't be subject to selling at this stage, but the list is very short," Bendukidze said.
Following an official statement concerning the prospect of selling Tbilisi's water distributing company, even the patriarchate of Georgia expressed its protest, stressing that already two strategic objects - the distributors of gas and electricity - have been sold and the population of Georgia suffered from a dramatic rise of tariffs.
But Bendukidze remains uncompromising. He says that privatization "of almost everything" is necessary for Georgia and that it should be carried out through open and transparent auctions. The authorities of Georgia support the new minister's plan for "aggressive privatization".
The Prime Minister says the government is presently working seriously with international experts to make future privatization processes fair, open and lawful. But Zhvania stopped short of endorsing a special program on privatization.