Assessment of the State Mechanism for Regulating Construction Companies in Georgia

Rusudan  Papaskiri

Journal number 3 ∘ Rusudan Papaskiri ∘
Assessment of the State Mechanism for Regulating Construction Companies in Georgia

journal N3 2025

DOI: 10.52340/ekonomisti.2025.03.05

Expanded Summary

The paper examines the state mechanism for regulating the construction business in Georgia and evaluates its effectiveness.

The purpose of the article is to study and analyze fiscal and regulatory instruments through which the state influences the construction business, such as antitrust and tax legislation, state loans, subsidies, and credit rates.

The theoretical and methodological basis of the research includes existing Georgian legislation, data from the National Statistics Office of Georgia, the Ministry of Finance of Georgia, and the Central Banks of Georgia and Estonia. The study also uses an overview of economic theories related to business, as well as comparative research.

The construction business is one of the most profitable sectors, which is why both local and foreign real investments are primarily directed toward it.

In market economy countries, including Georgia, antitrust regulation plays a significant role. The article identifies large construction firms close to the government that frequently win public construction tenders. These companies easily reach price agreements, which is one example of a "cartel agreement."

Such phenomena in Georgia\'s construction sector (and other industries) were facilitated by the abolition of antitrust legislation and the antitrust agency in 2005. The new “Law of Georgia on Competition" does not solve this problem.

According to the consolidated Tax Code of Georgia, currently in force since 2022, corporate profit tax and personal income tax are levied proportionally at 15% and 20%, respectively. In the early years of transition (1992–1996), taxes were more differentiated, as they are in leading European countries. The proportional system of corporate profit and income taxes in Georgia does not perform a stimulating function. This is evidenced by the declining share of the construction business in the economy over the years: 2017 - 9.8%, 2018 - 9%, 2019 - 8.6%, 2023 -7.8%.

The subsidy system is, in most cases, unsystematic. It is often directed toward individual projects, which are frequently not made public at all. It is known that large developers benefit rom such subsidies, increasing corruption risks and unfair competition.

In 2022, the state adopted the "Code on Construction and Architectural Activities," which provides for technical and construction regulation in line with EU technical regulations.

A major unresolved problem remains the fact that 45% of internally displaced persons from Abkhazia and South Ossetia still lack adequate housing.

We examined statistics from the Central Banks of Georgia and Estonia regarding the average annual lending rates issued to businesses by the banking sector. In Estonia, the credit rate is 2.3 times lower than in Georgia. This is facilitated by the European Central Bank\'s (ECB) policies and eurozone markets.

The conclusion is that Georgia\'s construction sector does not have an effective system of state financial average annual lending rates issued to businesses by the banking sector. In Estonia, the credit rate is 2.3 times lower than in Georgia. This is facilitated by the European Central Bank\'s (ECB) policies and eurozone markets.

The conclusion is that Georgia\'s construction sector does not have an effective system of state financial regulation.

Recommendations:

Reinstate antitrust legislation and the antitrust agency;
Differentiate profit and income taxes;
Establish transparent programs in the construction business, ensuring equal competitive conditions for all construction companies;
Reduce the annual lending rates imposed by banks on the construction sector.

EKONOMISTI The international scientific and analytical, reviewed, printing and electronic journal of Paata Gugushvili Institute of Economics of Ivane Javakhishvili Tbilisi State University

DOI: 10.52340/EKONOMISTI DOI: 10.36172/EKONOMISTI E ISSN 2346-8432 Print ISSN 1987-6890	Journal number 3 ∘ Rusudan Papaskiri ∘ Assessment of the State Mechanism for Regulating Construction Companies in Georgia journal N3 2025 DOI: 10.52340/ekonomisti.2025.03.05 Expanded Summary The paper examines the state mechanism for regulating the construction business in Georgia and evaluates its effectiveness. The purpose of the article is to study and analyze fiscal and regulatory instruments through which the state influences the construction business, such as antitrust and tax legislation, state loans, subsidies, and credit rates. The theoretical and methodological basis of the research includes existing Georgian legislation, data from the National Statistics Office of Georgia, the Ministry of Finance of Georgia, and the Central Banks of Georgia and Estonia. The study also uses an overview of economic theories related to business, as well as comparative research. The construction business is one of the most profitable sectors, which is why both local and foreign real investments are primarily directed toward it. In market economy countries, including Georgia, antitrust regulation plays a significant role. The article identifies large construction firms close to the government that frequently win public construction tenders. These companies easily reach price agreements, which is one example of a "cartel agreement." Such phenomena in Georgia\'s construction sector (and other industries) were facilitated by the abolition of antitrust legislation and the antitrust agency in 2005. The new “Law of Georgia on Competition" does not solve this problem. According to the consolidated Tax Code of Georgia, currently in force since 2022, corporate profit tax and personal income tax are levied proportionally at 15% and 20%, respectively. In the early years of transition (1992–1996), taxes were more differentiated, as they are in leading European countries. The proportional system of corporate profit and income taxes in Georgia does not perform a stimulating function. This is evidenced by the declining share of the construction business in the economy over the years: 2017 - 9.8%, 2018 - 9%, 2019 - 8.6%, 2023 -7.8%. The subsidy system is, in most cases, unsystematic. It is often directed toward individual projects, which are frequently not made public at all. It is known that large developers benefit rom such subsidies, increasing corruption risks and unfair competition. In 2022, the state adopted the "Code on Construction and Architectural Activities," which provides for technical and construction regulation in line with EU technical regulations. A major unresolved problem remains the fact that 45% of internally displaced persons from Abkhazia and South Ossetia still lack adequate housing. We examined statistics from the Central Banks of Georgia and Estonia regarding the average annual lending rates issued to businesses by the banking sector. In Estonia, the credit rate is 2.3 times lower than in Georgia. This is facilitated by the European Central Bank\'s (ECB) policies and eurozone markets. The conclusion is that Georgia\'s construction sector does not have an effective system of state financial average annual lending rates issued to businesses by the banking sector. In Estonia, the credit rate is 2.3 times lower than in Georgia. This is facilitated by the European Central Bank\'s (ECB) policies and eurozone markets. The conclusion is that Georgia\'s construction sector does not have an effective system of state financial regulation. Recommendations: Reinstate antitrust legislation and the antitrust agency; Differentiate profit and income taxes; Establish transparent programs in the construction business, ensuring equal competitive conditions for all construction companies; Reduce the annual lending rates imposed by banks on the construction sector.