Georgia: Economy, Poverty and Environment Poverty and
Environment Initiative Inception Workshop Bratislava (Slovakia)
December 9, 2008
Slide 2
1 Country overview Population: 4.6 mln (Department of
Statistics) Capital: Tbilisi Government type: Republic Area: 69,700
sq km (26,911 sq miles) State language: Georgian Major religion:
Christianity Life expectancy: 69 years (men), 77 years (women) (UN)
Median age: 38 years Monetary unit: Georgian Lari (GEL) GEL/US$:
1.4155, GEL/EUR: 1.7916 2007 GDP: GEL17.0 bn (US$10.2 bn) 2007 GDP
per capita: GEL3,868 (US$2,315) 2007 Real GDP Growth: 12.4%, versus
9.4% in 2006 and 9.6% in 2005 CPI Change: 2007 period average was
9.2% versus 9.2% in 2006 and 8.2% in 2005 Net FDI inflows: US$937.6
mln in 1H 2008, US$2,014.8 mln in 2007 versus US$1,076 mln in 2006
and US$542 mln in 2005 Source: CIA Factbook, BBC
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2 Governments Policy Governments Program Document United
Georgia without Poverty (2008-2012): National wellbeing Wellbeing
of the population Logistics, transport and the infrastructure
Natural resources
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3 Sustained liberal reforms of 2004-2008 have laid a sound
foundation for long term growth Political stability and continuity
Fresh five-year mandate for the confirmation of the reforms after
President Saakashvilis first-round re- election (53.5%) and
parliamentary elections in 2008 Strong capital inflows Net FDI
19.8% of GDP in 2007 Total private capital inflows 23% of GDP in
2007 Breadth of institutional investor coverage Moderate banking
and private sector borrowing Net remittances 7.4% of GDP in 2007
Expanding economic base Radical deregulation & liberalization
since 2004 Entrepreneurial boom, with over 50,000 new business
registered p.a. Pronounced shrinkage of grey economy &
corruption since 2004 Export diversification and growth (03-07 CAGR
of 26%) Robust Economic Performance & Sustained Growth Prudent
fiscal policy Low, flat and decreasing taxes Modern public finance
framework MTEF, Single Treasury Account, etc Budget expenditure cap
of 25% of GDP mandatory from 2011 Vibrant & rapidly growing
financial sector Banking sector assets/GDP at 44% at YE2007, up
from 16% at YE2003 Assets 03 07 CAGR of 52% Loans 03 07 CAGR of 57%
Deposits 03 07 CAGR of 48% No state-owned banks since 1996 No
restrictions on foreign ownership of the banks, 7 of the top 10
banks foreign-controlled NPLs at a manageable level of 2.6%,
predominantly collateralized lending BIS CAR of circa 15.8%
Loan/deposits ratio of 1.5x (Deposits + Equity)/Assets ratio of
0.66x Borrowed funds 30% of total assets Further sector reforms
Effective monetary policy Move to explicit inflation targeting in
2009 CPI target limited to single digits Parliamentary confidence
vote on central bank governor in case of four consecutive quarters
of +/- 2% deviation from the target Period average CPI of 11.1% -
10.2% since 2006 Cumulative increase of the main policy rate by
500bps to 12% in November 2007 July 2008, decrease to 11% in Aug.
2008 and to 10% in Sep. 2008 YTD CPI of 5.8% September 08 y-o-y
period-end CPI of 10.6% - one of the lowest in the region Broad
money y-o-y growth reduced to 6.3% by Sep. 2008 Full currency
convertibility since 1997 Stable currency and managed float
Positive external momentum Total public debt as % of GDP reduced
from 56% in 2003 to 23% in 2007 External public debt as % of GDP
reduced from 38% in 2003 to 15% in 2007 FX reserves increased from
US$191 mln in 2003 to US$1,446 mln in July 2008 Successful debut
5-year 7.5% RegS Eurobond of US$500 mln issued in April 2008
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4 Radical reforms created a favourable market environment
Corruption Perception Index, 2008 Economic Freedom Index, 2007 Ease
of Doing Business, 2009 Percentile rank indicates the percentage of
countries worldwide that rate below the selected country. Higher
values indicate better governance ratings Source: World Bank
Source: Transparency International; 180 countries ranked
(Percentile ranks) Worldwide Government Indicator, 2007 Source:
World Bank, 2008 (Rank out of 181 countries) Source: The Heritage
Foundation (Up from 130 in 2005) (Up from 112 in 2005) (Up from 93
in 2005) Euromoney - country risk rating, Sep. 2008 UNCTAD Inward
FDI Performance Index Ranking, 2007 Source: Euromoney (Up from 144
in March 2005) Source: UNCTAD (Up from 16 in 2005)
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5 and provided the platform for high economic growth GDP
Nominal GDP (US$bn)Real GDP growth, y-o-y (%) Components of nominal
GDP, 2007Comments Boosted by aggressive economic reforms and
substantial FDI inflows, Georgias economy continues to show strong
growth Rapid economic growth has been driven by A burst of
entrepreneurial activity Growth in domestic consumption led by a
new middle class Rehabilitation of infrastructure, and Exports
Georgias economic performance in 2006 and 2007 is particularly
impressive, taking into consideration the consecutive external
shocks (Russian embargo, rising commodity prices & subprime
meltdown) and tight monetary policy Source: Department of
Statistics of Georgia Nominal GDP = US$10,175 mln Source:
Department of Statistics of Georgia
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6 Improving living standards and providing economic
diversification Source: Department of Statistics of Georgia GDP per
capita (PPP)Broad-based economic growth Nominal GDP per capita US$
GDP per capita (PPP) (US$) US$ Source: International Monetary Fund
2007 2005 20012003 2001 Source: International Monetary Fund Source:
Department of Statistics of Georgia, National Bank of Georgia
B+/B/NA B1/BB-/BB- Baa2/BBB+/BBB+ Baa3/BBB+/BBB Baa2/BBB-/BBB
Baa3/BBB-/BBB US$
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7 LABOUR MARKET Challenge: structural unemployment/job mismatch
The most Liberal Labour Code 99% labour freedom (IEF, Heritage
Foundation) State Programs: Vocational Training and Retraining,
Development of Professional Training Infrastructure Professional
Education for Employment (PPP format), Cheap Credit, 100 new Agro
Industry Enterprises More than 163 800 job seekers took part in
active labour market measures Growing share of employment policy
expenditures (active and passive measures) in GDP: from 0.5% (2005)
up to 0.8% (2007) Source: Department of Statistics Unemployment
rate declined to 13.3% in 2007, down 0.3% y-o-y Employed population
1678.7 thousand, among which: Salaried employees 625.4 thousand
(+3.5% 07/06) Employers 19.4 thousand (+46% 07/06) Accelerated
growth rate of the number of salaried employed and decrease of the
number of self- employed Source: Department of Statistics
Unemployment Rate, % Monthly Salary of Employed in State and
Non-state Enterprises
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8 LABOUR MARKET AND DEMOGRAPHIC TRENDS Number of Population
4,382,105 people In 2007, the number of births increased by 3.1% y-
o-y to 49,287 people Number of deaths declined by 2.5% y-o-y to
41,178 people in 2007 Positive natural growth of the population -
8,109 people (up 46% y-o-y) in 2007. Economically active population
in Georgia decreased by 2.7% to 1 965,3 th. people in 2007
Subsistence minimum for working age male 118.6 GEL monthly,
increasing 11,1% y-o-y Subsistence minimum for average consumer GEL
105 Average monthly income per household - GEL 422 more than two
times as more as subsistence level of average household No minimum
wage regulation in private sector, minimum wage in public sector
115 GEL Source: Department of Statistics Natural Growth of
Population (person) Income per Household
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Agriculture, GDP (bln) and Share(%) in GDP, y-o-y Opportunities
Support to creation of new food processing enterprises
Privatization of the state owned plots of agricultural land
Rehabilitation of irrigation infrastructure Favorable foreign trade
regimes of agro- products Rural infrastructure
rehabilitation/development Cheap credits and delivery of machinery
and technique The Agriculture sector is the largest jobs provider -
53 % of the total population are employed in agriculture Though the
sector provides only about 9 % of GDP, the productivity is very low
Extremely fragmented holdings app. 1 mln land owners with 4 mln
parcel and 0.25 ha average parcel size Georgian agriculture largely
is non- commercialized subsistence forms prevail Dilemma:
Artificially accelerated growth of productiveness in agriculture
would imply substantial job distraction If not supported by job
creation in other sectors rise in unemployment is unavoidable
Governments Vision Agricultural development must be deeply
integrated into a comprehensive rural integrated development
policy: development of social infrastructure promoting creation of
new agro-processing industries stimulating non agro-employment
improved physical infrastructure Agriculture Source: Department for
Statistics
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Poverty 1997-20032003-20071997-2007 Real GDP Growth+33%+43%+89%
Real Agric GDP Growth+3%-1%+2.5% Rural Poverty LevelIncreased by
24% Fell in some regions (Real increase of 55% in non-farm cash
income) 60% of the poor currently live in rural areas Strong
economic growth has happened outside of agriculture 60% of the poor
live in rural areas Economic growth and poverty
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Poverty: profile 23.6 percent of the Georgian population is
poor, and 9.3 percent is extreme poor (note: extreme/total poverty
lines in Sep. 2007 prices is 47.1 Lari & 71.6 Lari per person
per month, respectively; extreme poverty line is based on the cost
of 2,260 calories per day; consumption per adult equivalent is used
as a welfare aggregate) Rural areas account for 59% of the total
poor (poverty incidence is 29.7% in rural vs. 18.3% in urban areas)
Employment status is strongly correlated with poverty Rural areas
account for 59% of the total poor, and 62% of the extreme poor
Livelihoods in rural areas continue to rely on low productivity
self- subsistence agriculture, making eradication of poverty
extremely challenging Rural poverty has a strong regional dimension
(i.e., rural areas are not equally poor)
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Poverty: Causes, Factors Since 2003 Georgia has implemented an
impressive number of reforms, embracing various spheres (economy,
governance, human development, etc.) The available data indicate
that living standards in Georgia have improved since 2003.
Household monetary incomes between 2003 and 2007 increased in real
terms on average by 31.6%, or 7.9% per annum Poverty in Georgia
continues to be deeply entrenched in rural areas, accounting for
60% of the poor Employment has not played its expected role in the
poverty reduction, due to narrowly-based growth and decline in
employment numbers Social assistance became an increasingly
important lifeline for Georgias poor, the role of Targeted Social
Assistance (TSA) is very important Narrowly based growth
(construction, finance, communications, tourism, mining); these
sectors registered the highest rates of growth in output and real
earnings, but they account for only 8% of the total employment
Stagnant agriculture output, still based on subsistence production
systems; The bulk of employment (54% of the total) continues to be
concentrated in low productivity, mostly self-subsistence
agriculture hence the poverty is deeply entrenched in rural
areas
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Poverty: Causes, Factors Since 2003 Georgia has implemented an
impressive number of reforms, embracing various spheres (economy,
governance, human development, etc.) The available data indicate
that living standards in Georgia have improved since 2003.
Household monetary incomes between 2003 and 2007 increased in real
terms on average by 31.6%, or 7.9% per annum Poverty in Georgia
continues to be deeply entrenched in rural areas, accounting for
60% of the poor Employment has not played its expected role in the
poverty reduction, due to narrowly-based growth and decline in
employment numbers Social assistance became an increasingly
important lifeline for Georgias poor, the role of Targeted Social
Assistance (TSA) is very important Narrowly based growth
(construction, finance, communications, tourism, mining); these
sectors registered the highest rates of growth in output and real
earnings, but they account for only 8% of the total employment
Stagnant agriculture output, still based on subsistence production
systems; The bulk of employment (54% of the total) continues to be
concentrated in low productivity, mostly self-subsistence
agriculture hence the poverty is deeply entrenched in rural
areas
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Policy Targeted Social Assistance, Jobs Creation 1/3 of State
Budget allocated for social affairs in 2008 and 2009 Cash transfers
But rapidly improving capacity to redistribute the benefits of
growth through social assistance; as of September 2007 targeted
social assistance (TSA) covered 30% of the extreme poor, and 19% of
the overall poor Non-cash transfers Universal health insurance
package for poors Reforms in the education and health sectors since
2003; early evidence suggests that those reforms contributed to
improved health and education outputs and outcomes
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15 Environment Protection - Institutions Government - Ministry
of Environment: monitoring and enforcing environmental law and
regulations Responsibilities of Ministry of Environment: -
Development of Environmental Policy; - Resource Management and
Environmental Control; - Examination of EIAs and Issuance of
Environmental Permits; - Enforcement of Environmental Law; -
Monitoring and Control of Emissions Parliament - Committee for
Environmental Protection and Natural Resources: drafting of
environmental law and overseeing the conduct of environmental
affairs on behalf of Parliament.
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16 Environment Protection Institutions cntd StateInspectorate
on Environment Protection State Inspectorate on Environment
Protection Execution of the state control in the field of
environmental protection; Detection and deterrence of the cases of
natural resources illegal using and violations of environmental
law; Control over the regulated community on implemtation of
conditions stipulated in environmental license/permit;
Implementation of the preventive measures and compliance promotion;
Response on the detected environmental violations; Monitoring of
environmental activities accomplished on high ecological risk
objects during construction and operation phases
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17 Environment Protection Legislation LawAreasYear Basic Law On
Environmental Protection On licenses and permits On State
Environmental Control 1996 2005 Other Environme ntal Laws
Concerning protection of air quality On Protection of Atmospheric
Air 1999 Concerning protection of water resources On Water 1997
Concerning waste __ Concerning nature protection On the wildlife
Forest Code On Protected Area System On Mineral Resources 1996 1999
1996
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18 Environment Protection Challenges Problems Classification of
problems Main Locations Main Causes 1 Air pollution Big cities of
the country Out of date autopark; Low quality of fuel; Poor traffic
management. 2 Pollution of Kura and other various small rivers;
Pollution of the Black Sea Pollution of water resources Industrial
areas; The Black Sea Amortized treatment plants; Discharge of
untreated waste water 3 Waste ManagementGarbage/WasteIndustrial
Areas; Populated areas Lack of legislation; Low level of
environmental awareness 4 Illegal logging, poaching Degradation of
nature Whole country Social problems; Low level of environmental
awareness
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19 Rehabilitation plan for water & sanitation Currently
access to water and sanitation system is unreliable and limited The
most urban water supply and sanitation infrastructure is outdated -
more than 40 years old The whole system faces very high technical
losses The management of the sector is ineffective, resulting in:
ineffective financial management unpredictability of companies low
level of collection high indebtedness of the companies
underinvestment in infrastructure development GNEWRC is empowered
with regulating the tariffs in the sector Restructuring: parceling
all state and municipal water and sanitation assets into large
viable companies will be performed: East Georgian agglomeration
West Georgian agglomeration And, Tbilisi agglomeration (already
privately owned) Investments for infrastructure development [500
mln USD] for development of water and partially sanitation system
GoG commits to a five-year protected line in the state budget,
covering up to [50%] of the [municipal] capital costs Donors fund a
management contract for an international operator to come in,
design the water and sanitation system and operate the companies
for [five] years. The operator would be chosen by means of
international competitive selection process The final aim:
privatization of the companies through international competitive
selection
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Landfills require a modern, nation-wide solution, entailing the
creation of several landfill nationwide, which meet key standards
Based on the above, donors grants contribute as equity with any SPV
is capitalized EBRD/IFC etc agree to lend long-term circa EUR 70-80
mln to the SPV (non-recourse) GNEWRC (energy and water independent
regulator) is empowered with regulating the landfill operator
tariffs GoG commits to a five-year protected line in the state
budget, covering up to 50% of the municipal costs, thus giving the
SPV some visibility of revenues Donors fund a management contract
for an international operator to come in, design the landfills and
operate them on a nationwide basis for five years. The operator
would be chose by means of international competitive selection
process 20 Nationwide waste disposal/landfill management plan
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21 Sustainable Forestry The GoG has two-dimensional policy in
forestry: environment dimension - effective management and
protection for preservation of biodiversity, protection of rare
species and ensuring conditions for their sustainable development
economic dimension economically viable forestry, with proper
incentives, i.e. long-term tradable lease of forest lands and good
supervision Environment dimension The GoGs priorities in protection
of forestry protection and preservation of forest's ecological
values Currently forests represent 43% of total territory of
Georgia Natural Protected Areas cover 10 % of total forest
territory and GoG plans to increase them by 23% for 2010 year
Economic dimension The GoG will modify forestry management forms
(Communal, Cultural, State and Private management) The GoG will
support effective utilization of forests economic potential taking
into account long-term benefit: Licenses are issued for long-term -
20 years Stimulating long-term private interest in the process of
forestry resource utilization for Ensuring of Ecological,
Economical and Social Benefits Highly valuable forest restoration
activities will be implemented taking care of protect forests
territory with respect of forests high conservation value
Management Plan (including inventory), based on international
standards and approved by the respective OECD member country
certified/accredited Eco-Audit Annual Eco-Audit Reporting, proved
by relevant organisation concerning the fulfilment of the
Implemented Activities TOP FIVE RANK IN THE WORLD
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22 Ecological Damage of the August Conflict Forest Fire Despite
the huge effort taken against the fire, it has been spread for over
950 ha. The fauna of the region experienced a significant damage.
Fire spread to the Nedzvi Sanctuary direction - estimated 150 ha
area burnt around the Sanctuary Representatives of fauna from burnt
areas forced to move to Nedzvi Sanctuary The worlds largest stands
of Oriental White Spruce (Picea orientalis - Caucasian endemic)
were burnt The territory, covered with fire was inhabited by the
numerous animal species, including those which are part of the Red
List: Brown Bear (Ursus arctos); lynx (Lynx lynx); deer (Cervus
elaphus); chamois (Repicapra rupicapra); otter (Lutra lutra),
whitetail eagle (Haliaeetus albicilla), Caucasus cock (Tetrao
mlokosiewiczi); Caucasus viper (Vipera kaznakovi); Caucasus
salamander (Mertensialla caucassica); vesper bat (Myotis
bechsteinii); European bat (Barbastella barbastellus); Caucasian
Squirrel (Sciurus anomalus).
Slide 24
23 August Conflict Pollution of Poti port water area 5 warships
of Georgian navy and 3 patrol boats of Georgian coast guard full of
fuel were sunk in the Black Sea Approximately 50 tonne of oil,
diesel fuel and lubricants have been spilled into the Black Sea The
substances spilt from the damaged and sunk ships are: Diesel fuel,
Diesel oil, Hydraulic oil, Sewage water. Source: UNOSAT
www.unosat.org