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Journal number 3 ∘ Vakhtang Burduli

Expanded Summary

Acceleration economic development of the regions of Georgia is one of the most important tasks facing the economy of the country.  For the government the solution of this problem seems to be one of the main four directions of economic development. In particular, as explains Prime Minister Giorgi Kvirikashvili "third block reform implies the development of the regions, which in this process should be one of the main cornerstones." In order to identify the ways of reform, that is, ways to improve national, regional and business coordination of economic development of regions, you must first statistical study the current state of the regional economy making the in-country and cross-country comparisons of this state with the major economic parameters and on this basis identify the main trends improving the economic situation in the regions.

Just as the level of economic development of the country in the first place is estimated by gross domestic product (GDP) per capita, the level of economic development of regions is estimated by gross value added (GVA) per capita set up in the region's, which in practice of many scientific and statistical studies is called the gross regional product (GRP). If we compare the index of  GDP per capita created in Georgia (in 2013, 3.52 thousand dollars per capita) with that of other countries, we find that Georgia belongs to the category of rather backward countries by this indicator.

Let us analyze what is the situation in the regions of Georgia.

The statistical data shows that nearly half of Georgia's GDP (48.4%) is created in Tbilisi (whereas its population is approximately ¼, more precisely 26% of Georgia's population). At the same time, the rate of GVA (GRP) per capita in Tbilisi exceeds 1.97 times the value of the indicator of Lower Kartli region being on the second place and 2.96 times - Samtskhe-Javakheti region being on the last place. First, we note that such a situation, when the value of this indicator in the metropolitan region greatly exceeds the values ​​of the indicators in other regions, is typical of many other post-soviet countries, and the difference in values are ​​more pronounced. For example, the figure for Moscow (29.27 million US dollars per capita), which is rated at a 5 th place in the Russian Federation (on this indicator Moscow is outstripped by  four subjects in which large volumes of oil or gas are extracting), at 3.21 times - the index of the Krasnodar Territory (rating 28) and 6.40 times – that of the Ivanovo region being on one of the last places (rating 76). In Ukraine, Kiev index (12.19 US dollars per capita) exceeds 2.19 times that of Dnepropetrovsk region being on the second place and 6.70 times - Chernivitski region being on the last place.

Indicators of  GVA (GRP) per capita, both in Tbilisi and other regions of Georgia are  far inferior to Russia and Ukraine regions, which shows a significant underdevelopment of regions of Georgia. For example, Tbilisi index (which does not include component on agriculture, which in the post-soviet countries, particularly in Georgia, in view of the discussed below circumstances greatly reduces the overall regional indicator) is 2.15 times less than Kiev  and 5.17 times - Moscow index.

As mentioned, the rate of GDP per capita for the population of Tbilisi greatly in (2-3) times exceeds the figures for other regions. At the same time, among other regions the difference in the values ​​of this indicator is insignificant (this situation in Georgia differs from that of Russia, where, in addition to the capital, among other regions there is a big difference between the values ​​of these parameters). For example, the rate of GDP per capita in the Lower Kartli region being on the second place (4.8 thousand GEL per capita) exceeds only 1.50 times the figure of Samtskhe-Javakheti region being on the last place). However, the figures of regions  being by rating on the second and third (Adjara Autonomous Republic - 4.53 million lari per capita) places have a certain detachment from regions being on the following places  where the figure in Imereti, Racha-Lechkhumi and Lower Svaneti region being on  the fourth place (3.56 thousand Lari per capita) exceeds only 1.10 times the figure of Samtskhe-Javakheti region being on the last place.

Now we shall try to explain why the value of the index of GRP per capita in Tbilisi region is 2-3 times greater than the value of indicators of the rest of Georgia. This is primarily due to the fact that in most regions, a smaller proportion has those economic activities that create a large mass of value added (at the same time, in these activities GVA per employee is much higher in comparison with the index of agriculture) such as industry, trade, financial intermediation, transport and communications. For example, in financial intermediation, banks may have branches in the regions, but most of the operations are carried out in Tbilisi (or in another city, where Central office is located) and the value added created during  this activity is fixed mainly in Tbilisi. The value added created in the wholesale and retail trade of agricultural products and raw materials, for the most part, is fixed in Tbilisi and other major cities. In Tbilisi and some other cities there are large commercial organizations as well, that create value added in the process of import and export operations. As for the industry, this kind of activity has the largest share in the GRP and GVA of the  country industry in other three regions, too. In addition there is no agriculture in Tbilisi. The rural population of Georgia is 46.3% of the total population, at the same time (except for Tbilisi), in all regions the percentage of the rural population is very high, for example, in Kakheti - 77.2%, in Guria - 73.5%, in Racha-Lechkhumi and Lower Svaneti -80.2%, Imereti - 52.2%. In rural areas, the majority of the value added is based on agriculture. The share of the value added obtained from other activities in rural areas is very low (except for processing of products by households, repairing of technology and education). The indicator of GVA per employee in Georgian agriculture is much less compared with other activities. All these factors contribute to this difference of indicators of GRP per capita of Tbilisi population from that of other regions.

The article has also analyzed  the formation of the region's GRP in the context of economic activities, taking into  consideration  each activity indicator of GVA per employee.

To some extent, a visual representation of the level of development of regional economy and its degree of diversification gives the distribution of the GVA (or GRP) established in every region by types of activity. To assess the degree of economic development of regions it is also of great importance to identify the share (contribution) of each particular region in value added created in the context of specific activities in the country as a whole. The corresponding analysis by regions was held in the following activities: agriculture; industry; recycling of household products; building; trade; transport and communications; financial activities; other services.

Indirect view on  the degree of economic development of the regions is also given by the index of value added for each activity, calculated per employee. For the comparison of corresponding figures for Georgia with those of developed countries, the article also includes such indicators (value added per employee) in agriculture and in the manufacturing industry in a number of developed countries.

In general, from the statistical analysis of regional economies was found out the following:

1. Indicator of GRP per capita in Tbilisi is significantly (2-3 times) higher than in other regions.

2. Indicators of GDP per capita in all regions of Georgia is much less than in similar indicators for the regions of Russia and Ukraine.

3. The analysis of distribution of value added produced in Georgia according to economic activity of regions,  proves: a) that most of the value added created in such an important activity as the industry accounts for two regions of Tbilisi and Lower Kartli (41.3% + 24.7%), indicating a weaker development of the industry in other regions of Georgia as compared with these regions. In particular, the capacity of industrial centers located in some regions (Kutaisi, Poti, Batumi) has been reduced; b) in such key activities as "transport and communication", "trade; repair of motor vehicles, household goods and personal use items "and" construction" a large part of the value added (respectively 81.4%, 80.4% and 66.4%) has been created  in Tbilisi; c) most part of the value added in the "financial performance" falls on Tbilisi (a situation is typical for Russia and Ukraine region, as in the capitals there are placed central offices of the most important commercial banks but their branches located in other regions, are creating relatively small volumes of value added). Shares of the value added in the corresponding GRP of other activities related to the service sector ("hotels and restaurants", "real estate, renting and services to consumers", "provision of communal, social and personal services") to a certain extent are comparable with their shares in Tbilisi region.

4. From the analysis of the GVA per employee in the context of the activities turned out that: a) in Georgia indicators of GVA per employee for different types of activities are very different in size. Extremely low is the  figure in agriculture - 1.0 thousand GEL per worker,  the most is in the "financial intermediation" - 37.7 thousand GEL per worker, it is also high in the "industry" - 13.6 thousand GEL in "hotels and restaurants" - 13.3 thousand GEL and "real estate transactions, renting and business activities" - 10.9 thousand GEL per worker. Therefore, the regions which have in GRP a high proportion of activities with high GVA per worker, there is a higher GDP per capita, because the population of each region in one way or another is proportional to the number of employees. That is, in those regions where there are more workers in activities with high GVA per employee, the higher is  the indicator of GDP per capita; b) GVA per employee in Georgian agriculture is very low compared with those in developed countries, for example, it is 60 times less than in France, 20 times less than in Argentina and 10 times less than in Belarus. In Georgia, compared with other countries there is also low the rate of GVA per worker in the manufacturing industry, for example, it is 9 times less than in France and 3 times less than in Russia.

Now we focus on ways to improve the situation in the regions through the development of various parameters of the economy.

1. Improvement through the creation of new enterprises and organizations. The industry needs to initiate the development of industrial sites (in some regional cities) with the placement there of enterprises equipped with modern business technology. In Georgia, as a transit country, you can use the so-called method of "industrial transit" (for example, in Batumi, Poti and Anaklia), under which at a greater or lesser extent is realized industrial processing of the part of transit goods, mainly in the cities where their transfer takes place (for example, from ships to trucks and vice versa). In particular, it is necessary to create high-tech enterprises, which are very few now in Georgia  either on the basis  of real attraction of foreign capital, or through the purchase of necessary technology by local entrepreneurs to create new businesses. In agriculture, due to the establishment of new farms and cooperatives must be  developed unused land areas, and increased  the area occupied by forage crops, too (e.g. corn, clover, alfalfa) in order to increase the production of meat and dairy products, as well as wool and leather  (to use in light industry), as far as insufficient output of these products makes a very negative contribution to the export-import balance). The region should pay more attention to the problem of improving the exploitation of the land, including the  replacement of plants (melons, apples, low-quality varieties) cultivated on inefficiently used lands by other cultures. Owing to the shortage of land in Georgia it is necessary to ban transfer of land for agricultural purposes in other categories. In agriculture it is also needed to intensify efforts for consolidation of farms, widely use co-operative forms of organization of farms. In the region should also be continued to outpace the advanced development of certain service activities (through the creation of relevant enterprises and organizations). This tendency has been long existed in the developed countries where for long periods a certain part of the labor force had been drained from agriculture and industry (due to the release of the labor force as a result of rapid growth of productivity there) to service industry.

2. Improvement due to productivity growth (that is, in fact, due to the growth of GVA per employee). In industry, productivity growth should take place through the development of new technologies and modernization of existing ones (on terms of timely training to work on these technologies); In high-tech industries, as well, by incorporating new enterprises, built in the country in international technological chains in which they will create a certain part of the value added for the production of a specific final product (for example, in Georgia, the construction of a plant has been started that will produce parts and assemblies from composite materials for different types of aircraft. This company, in fact, will become one of the links in the international process chain for the production of the final product (aircraft), which will supply the corresponding parts and assemblies for the factories located in different countries producing the final product - various types of aircraft). But it is necessary to create such corporations, too, in which will be located the majority of units of the technological chain for the production of high-tech final product within the country (this is possible even in a small country, such as "Nokia" - in Finland, metallurgical plants - in Luxembourg). In agriculture, the increase in productivity is possible by improving productivity. For example, currently the yield of grain in our country is 2-3 times lower than in countries with developed agriculture. To obtain these results it is necessary to master the relevant modern agricultural technologies, as well as, where it is appropriate - to conduct activities for the remediation   of soils. Particular attention should be paid to the land operation in mountainous areas in order to prevent their erosion during misuse. In transport the productivity growth is possible by increasing the transport of goods and passengers.

3. Improvement by increasing the production quality and orientation to modern standards. In industry this problem requires different approaches with respect to the traditional and high-tech industries.  Among  traditional industries more neglected is the situation in light industry. The demand of the population is almost entirely provided by imports, whose volume 6.9 times exceeds the volume of local production and 11.7 times - the volume of exports. Therefore, in most regions it is necessary to create light industry enterprises and in existing plants it is necessary to improve significantly the quality of products. First of all, it is necessary to create such enterprises for the primary processing of leather that will ensure the output of high quality leather for shoe industry companies to meet modern standards (the quality of their processing is currently not fit into any modern standards and, therefore, shoes produced in Georgia as a result of the circumstances is of poor quality and marketing of products is difficult). Therefore, the demand on such leather in the industry is low, as a result of which   agriculture and light industry lose the ability to create quite a meaningful volume of value added. In the agricultural sector of Georgia it is also necessary to change the breed of sheep, as far as sheep wool today does not meet modern standards (textiles made from it is not competitive enough), so demand on this wool is low. In parallel with efforts to improve the quality of leather, fur, it is necessary to create in regional towns shoe and textile factories, garment factories supplied with modern technologies.

The relatively favorable position is in the building materials industry. But in order that exports exceed imports, the industry requires a certain increase in the production of building materials with  the orientation of characteristics of the products on international standards. In the Inner Kartli, where now there are several large-scale enterprises producing building materials, it is possible to create an appropriate industrial center, with a base of several more enterprises of the industry equipped with modern technologies. The concentration in this region of a large number of enterprises of building materials industry will enable the creation of the innovation center of corresponding profile, the achievement of more industrial products of higher quality and the creation of   the center to promote export sales of this product in the region.

To create a modern high-tech industrial enterprises (with high GVA per employee) it is necessary to attract companies of TNC, and local entrepreneurs need to purchase the appropriate modern high technology and ensure integration into international production chains and export marketing system.

Great enough part of agricultural products meets international standards (a certain part is ecologically cleaner in comparison with similar products from other countries). But the fruit and vegetable farming in the last period was partially triggered. For example, the production of apple varieties has been decreased. Therefore it is necessary to restore full production of valuable fruit varieties; the same areas, which are currently producing such fruits, the realization of which is difficult even in the domestic market should be used to output other products. Another problem in rural areas, as has been said - is the production of balk grade wool of sheep, it is difficult even the realization of mutton, demand on the produced fleece is very low on the part of processing enterprises of the textile industry (as it is impossible to produce competitive fabric in current  conditions).

4. Improvement owing to modern organization of production. In industry, it is necessary to create an associations of industrialists in the context of the chains of value added for the production of final products which at the business level will coordinate sector industrial policy. For example, at these levels one can create organizations to facilitate export sales (jointly creating such organizations by entrepreneurs of interested firms). It is necessary to create a modern network of technology transfer with a leader company in the center and its representatives in the regions. The organizations of technology transfer require the existence of engineering units, which will help entrepreneurs in the choice of technologies and procurement, assist in the process of their implementation. In agriculture, it is necessary to consolidate enterprises, in particular through the organization of cooperatives, too, create associations of agricultural producers with manufacturers processing their products in the fields of food and light industries.

5. Improvement through the organization of technology parks in the regions (centers of competitiveness). In the last 10-15 years in many countries (e.g. France, Finland) industrial parks (competitiveness centers), are bringing great economic benefits, the essence of which is "the grouping on a specific territory of enterprises, higher education institutions (public or private) that are designed to work together to  implement economic development projects and innovation". Of course you cannot create at once such units in all the regions of Georgia for lack of a sufficient number of qualified staff and difficulties with financing, but in large regions it is necessary to start it, first of all based on the formation of economic mechanisms of financing and cooperation of scientific organizations and manufacturers to develop (or import) and introduce   innovative technologies.

Further reform (improving) of the mechanisms of the state, regional and business coordination of economic development of regions is required to ensure the implementation of these measures.