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Journal number 2 ∘ Alimi Kherkhadze

DOI:  10.36172/EKONOMISTI.2022.XVIII.02.Alimi.Kherkhadze


In the very first years of gaining independence, Georgia faced severe social and economic problems. From the planned economy of the socialist set-up, there was no proper knowledge and ready recipe for the transition to a market economy, all this was compounded by the loss of raw and key markets and an externally inspired conflict-ridden economic crisis that led to the collapse of the country's economy. According to various estimates, the Georgian economy in 1994 was almost four times lower than in 1988. It can be said that Georgia's transition from a planned economy to a market economy was like the free fall of a fast-moving car with broken brakes. During the 30 years of economic fluctuations, Georgia has lagged far behind and all the channels of demand in the global economy have been filled. Unless there is an innovative or unique product, gaining a place and relative advantage in the global supply chain is especially difficult today, so we are still in the role of import-dependent consumers and have raw materials and materials typical of low-exporting countries.

The government of Georgia started economic transformation reforms according to the plan of Polish Leszek Balcerovich. Only three of the 10-point plan of Baltserovich's shock therapy were implemented in Georgia: the initiation of inflationary processes, the reduction of the population's income and the creation of tax legislation, the first two of which further aggravated the macroeconomic and social situation of the country, and the administration of the third actually did not take place in the 90s. The years 1994-1998 were the years of the main reforms of the transition from the planned to the market economy, during which, along with the introduction of the national currency, the banking system underwent changes, small and medium-sized enterprises were privatized, and trade was liberalized. In 1996-1998, Baku-Sufsi oil pipelines, and in 2003-2005 Baku-Tbilisi-Ceyhan oil pipelines were built. The government that changed in November 2003 through the "Rose Revolution" shifted the focus to economic reforms, reduced the amount of taxes, sharply increased the administration of the economy and budget revenues, although due to some mistakes, the government that came with anti-corruption, liberal ideas was accused of elite corruption, business harassment and human rights violations, which In 2012, the "Rose Revolution" led to the change of government through elections.

According to the Madison database, independent Georgia's best indicator (PPP currency purchasing power) of GDP per capita in 2019 was $12,595.8. A similar level in the United States of America in 1940 ($12,005), Europe's richest and world's 4th economy Germany - in 1961 ($12,675), the poorest country of the European Union, Bulgaria - in 2006 ($12,706). The current level of economic development of Georgia was reached on average in the world 12 years ago - in 2008.

In order to change the current situation, first of all reduce the level of import dependence. In an ever-changing global world, new opportunities are suddenly emerging, and we must be prepared to respond quickly to new economic demands and take our place in the global supply chain. In our view, two key factors in tackling poverty need to be addressed: investing a growing portion of public wealth in education tailored to the needs of the modern world, and second, focusing on the production of high value-added products. The more recycling cycles the raw material goes through, the more value is added to it and the more the society gets richer. Qualified, high-quality education, together with relevant support programs, restores and creates new sectors of the economy, which will be a turning point for Georgia's economic development.

Population, education and economy are the fundamental pillars of the country's development, without which there is no rich, developed state. Without a well-developed economy, no one is "hungry" for education, people are in self-preservation mode, and a society struggling to survive cannot think about development. Without good education, there is no knowledge-based economy and no wealth. The state should massively retrain a significant part of the population in the direction of IT and computer technologies and offer the international market knowledgeable personnel working on high-tech innovations. The provision of quality education to the population should be accompanied by the growth and development of the economy, since in an underdeveloped country, the provision of education to a citizen is only a push for emigration. In order to establish a place in the world economy, first of all, the policy of import substitution should be actively implemented. It takes time and a lot of effort to penetrate the international supply chain, so the industry should initially try to grow in the local market, it should have growth potential and have a steady rise.

Georgia's foreign trade statistics, the composition of exported and imported goods, the degree of dependence on tourism and remittances thoroughly describe the weak positions of the Georgian economy in the world economy. To get out of the vicious circle of economic hardship, Georgia needs a breakthrough, and it should be rapid economic growth, which should be conditioned by intensive reforms and modernization in the areas of mental, demographic, education, good governance, introduction of innovations, digitization and investment attraction.

Georgia's export-import statistics tell us that with this trend we are moving towards becoming a raw material and key base for the rest of the world, so we should quickly start thinking about reducing the share of imports based on the development of our own production, and instead of raw materials and materials, we should export as much high-tech, multi-production cycle products as possible.

Instead of tourism, which is characterized by instability and should be considered as a source of additional income for our economy, the state should focus on industrialization and support the development of such industries that belong to the real economy and Georgia has the potential to produce them. Important attention should be paid to energy independence, since the economy of the XXI century does not exist without energy security. Georgia should not deviate from the principles of market economy, however, it should take strategic decisions to protect its own production. For rapid economic progress, it is necessary to take steps towards internetization-digitalization of the country, to offer a population trained in IT technologies for the international labor market, given quality education, and to conduct an effective campaign to attract real investments.

            The COVID 19 pandemic, along with the cheapness of production facilities and labor, has brought security of supply and diversification of production into significant focus. Concentrated productions in China and Asia have shown manufacturers that locating production sites in different geographical locations is important for security of supply, therefore, for investors who are looking for new production sites today, due to favorable geographical location, easy start of business activities and increasing harmonization with international legislation, we should present Georgia as an attractive place.

In the case of carrying out the right reforms, if we also start introducing quality education, in a world where new geopolitical redistribution is taking place, new digital innovations are being created every day and new sectors of the economy are being born, Georgia has a good window of opportunity to take a place in the global supply chain and with rapid economic growth, social to achieve economic prosperity.