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GDP: $3.6 billion.
GDP per capita: $744.
GDP growth: 5.3%.
Inflation rate: 3.4%.
Natural resources: Forests, hydropower, nonferrous metals, manganese, iron ore, copper, citrus fruits, tea, wine.
Industry: Types--steel, aircraft, machine tools, foundry equipment (automobiles, trucks, and tractors), tower cranes, electric welding equipment, fuel re-exports, machinery for food packing, electric motors, textiles, shoes, chemicals, wood products, bottled water, and wine.
Trade (2001): Exports--$354 million. Partners--Russia, Turkey, Azerbaijan, Armenia. Imports--$737 million. Partners--Russia, Turkey, Azerbaijan, Germany, Ukraine, United Kingdom, Turkmenistan, United States.
Work force (1.72 million in 2000): Agriculture--52.1%; trade--10.0%; education--6.5%; public administration--6.0%; manufacturing--5.9%; health and social work--4.9%; transport and communications--4.1%; unemployment (2002--12.3% official - State Statistical Department).
Georgia suffered severe political and economic turbulence during the years following the re-establishment of its independence in 1991. In the mid-1990s Georgia began to experience modest but increasing levels of GDP growth and foreign investment. Until 1998 Georgia's economy grew on average 7%. This growth was attributable to the introduction of a new, stable currency, reduced rates of inflation, and the re-establishment of both economic and political stability. Economic growth and reform slowed in 1998, due to the Russian financial crisis, drought, and political events, including a major outbreak of hostilities in Abkhazia and an assassination attempt against the President. However, the period also saw completion of the first major infrastructure project, the Baku-Supsa early oil pipeline.
Growth through 2002 was positive, and Georgia's economic performance is slowly improving, with GDP growth of 3% in 1999, 2% in 2000, 4.5% in 2001, 5.3% in 2002, and 8.3% in the first nine months of 2003. Despite these setbacks, Georgia led the former Soviet Union in developing the legal infrastructure necessary for an attractive investment climate. Georgia maintains no currency controls, allows foreign investment in all but a few sectors deemed strategically important, and has implemented an impressive privatization program, including land privatization. Georgia was the second country of the former Soviet Union to join the World Trade Organization, which will provide additional opportunities for development.
Economic activity in Georgia remains below potential. The low level of increase in trade and GDP are due to fundamental economic problems that have eroded investor confidence in Georgia. The poor fiscal situation, pervasive corruption, and arbitrary implementation of laws and regulations have inhibited economic growth in the country. Georgia's electricity sector is in critical condition. Shortages of electricity have resulted in public unrest each year. In 1998, Georgia began to privatize its energy distribution system and hoped to privatize its energy generation system by 2000, an objective that remains unrealized.
Privatization is the only means to generate the capital needed to rehabilitate the economic sector. Due to a lack of investment, Georgia's transportation and communication infrastructure remains in very poor condition. The Ministry of Transport and Communication's agenda to privatize the telecommunications industry has been hampered by the lack of bidder interest.
Corruption in Georgia, both official and otherwise, has been a significant and persistent obstacle not only to domestic and foreign investment, but also to economic development. Its pervasive nature and high visibility have stunted economic growth and seriously undermined the credibility of the government and its reforms. In July 2000 the government created an Anti-Corruption Commission that made its report in the fall of 2000. Based on this report, an Anticorruption Coordinating Council (ACCC) was created in summer 2001 to implement recommendations of the Anti-Corruption Commission. Its recommendations include several measures that, if implemented, would improve the investment climate. However, few, if any, of the recommendations have been acted upon. The ACCC has, however, become more active, and in fall 2003 they recommended that members of the traffic police be removed and prosecuted based on reports of corruption.
Problems with fiscal policy affected macroeconomic conditions in recent years. An International Monetary Fund (IMF) program initiated in 1996 was put on hold in 1999 due to Georgia's failure to meet certain budgetary targets. However, an improved macroeconomic picture and a more realistic budget in the second half of 2000 paved the way for IMF Board approval of a new program for Georgia in January 2001. Though Georgia's fiscal performance since has been uneven, dialogue continues with the IMF and World Bank. The IMF program was halted repeatedly in 2001-02, following Georgia's continued difficulty in both reaching targets and complying with a number of requirements. Georgia reached a debt rescheduling agreement with the Paris Club in 2001, which covered its principal debts due in 2001 and 2002, and also contained a goodwill clause extending the agreement to the amounts falling due in 2003 conditional on the existence of an IMF program. In the summer of 2003, however, Georgia's IMF program (a Poverty Reduction and Growth Facility, which was scheduled to expire in January 2004) fell off-track, due to significant fiscal slippages in the first half of 2003 stemming from optimistic budget assumptions on certain receipts that did not materialize, and a slackening of the tax collection effort. The authorities were unable to obtain parliamentary support for a revised 2003 budget intended to fully close the emerging fiscal gap. Discussions on a successor IMF arrangement are expected to begin in January 2004.
Foreign direct investment (FDI) has declined in recent years to $61.8 million in 2001, compared to $83.65 million in 1999. Key sectors of economic activity in Georgia include energy, agriculture, trade, tourism, and transport, as well as significant projects in the food processing and telecommunications industries. The United States is the largest foreign investor in Georgia, annually contributing between 20%-34% of overall FDI in recent years. The construction of the Baku-Tbilisi-Ceyhan oil pipeline, which began in April 2003, and the Shah Deniz gas pipeline, expected to begin in 2004, will offer opportunities for investors in the energy sector as well as related infrastructure. Additional privatization is planned in the energy sector, including power distribution outside of Tbilisi and hydropower facilities.
Georgian agricultural production is beginning to recover following the devastation caused by the civil war and sectoral restructuring necessary following the breakup of the Soviet Union. Livestock production is beginning to rebound, and domestic grain production is increasing. Both will require sustained political will and infrastructure improvements to ensure appropriate distribution and return to farmers. Tea, hazelnut, and citrus production have suffered greatly as a result of the conflict in Abkhazia, an especially fertile area. Supported by European Union assistance, Georgia has taken steps to control the quality of and appropriately market its natural spring water. Georgian viniculture, well developed during Soviet times, is internationally acclaimed and has absorbed some new technologies and financing since 1994.
To encourage and support the reform process, the United States and other donors have shifted the focus of assistance from humanitarian to technical and institution-building programs. Provision of legal and technical advisers to various government ministries is paired with training opportunities for parliamentarians, law enforcement officials, and economic advisers, complemented by extensive educational exchanges programs. The United States and other donors have increasingly imposed conditions on assistance in order to encourage improved performance on key issues and in key sectors, including energy. The United States terminated two assistance programs in fall 2003 due to lack of progress and commitment for reform on the part of the Georgian government. Georgia continues to depend on humanitarian aid, which is increasingly targeted to most-needy groups.