Georgia shows decreased GDP and FDI

Georgia was elected as a member of the United Nations Economic and Social Council (ECOSOC) for a period of 2014-2016. The information was spread by the Ministry of Foreign Affairs.

According to the ministry’s official page “the election took place on the the 30th of October 2013 in New York in the frames of the 68th Session of the UN General Assembly.” The Council's 54 member governments are elected by the General Assembly for three-year over-lapping terms. Seats on the council are allotted based on geographical representation with fourteen allocated to African States, eleven to Asian States, six to Eastern European States, ten to Latin American and Caribbean States, and thirteen to Western European and other states.

The Foreign Ministry officially thanked all countries who voted for Georgia in the election. The council membership can be an important achievement for the country, as the new government has repeatedly announced that their major focus will be economic development and social well-being. The ECOSOC studies and recommendations provided on issues connected with economic, social, educational, cultural and health protection spheres within the international system.

The new government’s economic policy has been widely criticized by the opposition parties and by some experts as well. Prime Minister Bidzina Ivanishvili has been supporting the creation of foundations to attract investment to leading economic fields in Georgia. The country’s economy has traditionally revolved around wine-making, Black Sea tourism, agriculture (tea and grapes, cultivation of citrus fruits), mining of manganese and copper. Considering that Georgia went through sharp economic decline during 1990s, Foreign Direct Investment (FDI) has been the major source for a rapid economic growth in Georgia. However, the economic growth has declined since 2012. According to the Economic Research Policy Center (EPRC), economic growth slowed down “due to the decreased FDI and election related uncertainty.” Three out of four indicators have decreased: there has been a decrease in aggregate demand, investments, and the government spending.

Despite the criticized economic policy, the government still managed to show at least some growth of the Gross Domestic Product (GDP) in the first three quarters of the year 2013.

According to the National Statistics Office of Georgia „the estimated real Gross Domestic Product (GDP) growth rate amounted to 1.7 percent year-on-year in September 2013. The estimated real GDP growth for the Q3 2013 reached 1.3% year-on-year and for first nine months of 2013 - 1.7 percent year-on-year.“

In 2012, GDP for Georgia was estimated 12.56 billion GEL GDP. GDP was expected to be increased for around 6% in 2013 and to reach around 14.11 Billion GEL in 2014. However, EPRC highly doubts that „projected 6% Gross Domestic Product (GDP) growth” can be achieved in the following years. According the EPRC report Georgian Economic Outlook – 2013, even the adjusted estimate of 3-4% real annual growth is questionable.

The report stated that Georgia has been facing deflation for almost a year. Global FDI fell by 18%, and of course it had an impact on Georgian economy as well, as most of the sectors had to face a declining trend in the country.

However, EPRC report also notes a “significant increase in investments in the fields of energy, mining and transport and communications, while the largest decrease is in the construction sector.”

“According to the 8 month data, as compared to the same period in 2012, we observe a 56% increase in the export of mineral waters in monetary terms, and 67% increase in wine export. It should be noted that this is not a very distinguished growth; Georgian exports have grown by 30% from 2010 to 2011, and another 8% from 2011 to 2012,“ EPRC states.

According to the EPRC, economic growth marked in the recent years was largely due to the government activities in the economy. Considering that the Georgian economy is currently experiencing a slow down, the EPRC advised the government to “play an important role, through the correct fiscal policies by means of budgetary tools to smooth downturn and avoid a crisis.“