Georgia lags behind this year’s investment target
23 December, 2010
Georgia lags behind this year’s investment target

Investments inflow for 2010 is supposed to lag much behind the forecasted USD 1.2 billion. Nonetheless government seems hopeful to have higher than predicted economic growth this year, and fill the investment gap in coming years.
According to preliminary data of Georgian official statistics body, the Foreign Direct Investments (FDI) inflow accounted for USD 160 million in the third quarter of 2010 that is by USD 37 million less than the FDI figure of the second quarter [standing at USD 197

million] and by 7% less than the volume of FDIs in the third quarter of last year - the year badly affected by financial crisis and economic slowdown when total FDIs volume made just USD 658 million against the backdrop of 2% of economic slump.
Expectations toward 2010 were much higher. Government assured that Georgia bottomed out the crisis in 2010 and the investments prognosis fluctuated from the pessimistic USD 800 million [forecasted by international financial institutions] to USD 1.2 billion [governmental forecast], and economic growth was expected to reach 4.5%.
Actually the total amount of three quarters of 2010 made about USD 433 million and to reach even the pessimistic prognosis [of USD 800 million] the volume of FDIs must almost double in the fourth quarter. That seems scarcely possible taking into account that  FDIs inflow could not reach USD 400 million in the last quarter even in 2007 when the volume of investments was the highest [more than USD 2 billion] in the history of independent Georgia.
Georgian government has already acknowledged that this year FDI prognosis will not be justified, but ascribes the reason to financial crisis and believes that the gap will be filled in the coming years. 
“If we take a look at FDIs inflow of all countries [globe over] we will see that the rate of FDIs significantly lags behind prognosis elsewhere. This is a result of financial crisis of 2009. Unfortunately even those investors who have money do not invest as eagerly as they did in 2008 and 2007. They make more detailed analysis of countries where they think to invest. Ministry of Economic Development together with other ministries works on many big projects with big investors. These projects [focused on energy, agriculture and tourism mainly] most probably will not come true in 2010 and we will not reach the targeted USD 800 million but they will be implemented in 2011, 2012, FDIs will increase in coming years,” Vera Kobalia, Minister of  Sustainable and Economic Development of Georgia, told Georgian Journal.
Irrespective diminishing FDIs economic growth Georgia exceeded this year’s target of 4-5% reaching average 6.5% based on 9 months’ analysis, Nika Gilauri, Prime Minister of Georgia, stated at governmental session of December 17, 2010. He predicted at least 7% growth next year. 
According to Demur Giorkhelidze, an independent economic analyst and former MP, 5-6% of economic growth is pretty good growth rate in a post-crisis period, but Georgia needs at least 9-12% each year to push its economy forward. And to boost economy Georgian government had  better to shift its economic focus from FDIs on activation of local economic recourses by giving an impetus to start-up businesses and Small and Medium Sized Enterprises (SME) development.
“Average volume of FDIs must make at least 20-30% of GDP to insure economic development of any country that translates into USD 2-3 billion and looks quite unrealistic to Georgia. Georgian government would focus on development of SME sector and local business rather than care for FDIs. All countries develop special stimulating programs for SME sector while Georgia absolutely lacks this strategy,” Giorkhelidze explained to GJ. “Let’s duplicate the post-crisis strategy of US that is our sample country in everything and make industry and SME development as priorities.”
Paata Sheshelidze, President of New Economic School, supposes that the slump in FDIs inflow this year is caused by increase of state expenditures, increase of some tax-rates, and shift of the super-liberal economic course to less liberal European economic course. After Georgia launched talks on conclusion of Free Trade Agreement (FTA) with the EU in 2008, government had to curb its liberal inclinations and restore anti-trust body in the country.
“Investors would like to invest in more business-friendly environment than their home-country offers. And just imagine why do they come here if we offer similar barriers to business as they have in their countries, I mean the EU in this case?” Sheshelidze asks.
He also doubts that incompetent personnel of Georgian embassies and representations abroad are one of the factors affecting FDIs inflow in Georgia. They fail to provide investors with due information on Georgia’s investment potential and business climate, he presumes.

 

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