Caspian Energy (CE): The World Bank is predicting a 5% economic growth of Georgia in 2019? Which measures are planned to be taken to maintain an economic growth?
Natia Turnava, Minister of Economy and Sustainable Development of Georgia: We expect that wave of strong positive tendencies in Georgian economic performance will continue during 2019. According to the preliminary estimate, economic growth rate in March 2019 amounted to 6 percent and average growth of January-March equaled to 4.7 percent. Strong economic fundamentals and macroeconomic stability creates the solid background for further growth. According to IMF’s latest estimates, Georgia will have highest growth rate among neighboring countries in 2019-2024, averaging 5.1%.
Herewith International Financial Institutions highlight positive expectations towards our country’s economic development. Georgia improved positions in sovereign credit rating performance. In April, 2019 “S&P” upgraded sovereign credit rating outlook prom stable to positive. Earlier, in February 2019, Fitch upgraded Georgia’s credit rating to “BB” from “BB-“. Macroeconomic stability, resilience towards external shocks, favorable business environment and institutional strength are among the main reasons for increasing sovereign rating that creates the solid background for increasing investors confidence.
Overall, economic growth in the country is private sector driven. Investments in real sector, export diversification, further improvement of business environment and increase of tourist flows will be the key drivers that positively affect Georgia’s economic performance.
Moreover, economic growth in the country will be supported by structural reforms and appropriate economic policy. Fiscal policy will be more oriented on growth, meaning increase of capital expenditures and speed up implementation of infrastructural projects. Capital market development and pension reform will positively affect economy in the medium term. The more long term reform is education reform, which is main priority of the government, which will increase human capital in the economy and improve our competitiveness.
Together with these reforms, Government of Georgia has prioritized SME development as we expect this to be the main source of private sector growth, jobs creation and innovation. As well, GoG continues implementation of the DCFTA reform agenda, which is essential for the utilization of potential provided by the EU-Georgia Association Agreement.
Herewith, actions oriented at institutional strength and increase of government efficiency will further contribute to the productivity enhancement and acceleration of economic growth. To this end, Government is committed to further support foreign capital inflows into Georgian economy, as FDI is an important source of economic growth and knowledge and technologies transfer.
Successful economic reforms implemented in the country has already brought tangible results that are well reflected in international rankings. In regard with ease of doing business, Georgia is one of the leading countries globally taking 6th position worldwide and 1st position in ECA region having the 3rd lowest tax burden in the world.
CE: Accumulated pension system has been launched in Georgia since 2019. What are the initial results of this process?
Natia Turnava: The Pension Reform, which implied creation of defined contributory pensions system (Pillar II) is effective since January 2019. Within the system, accumulation of contributions has started from January 2019 and more than 747 770 employees are participating in the system. Total contributions of pension fund as of May 1st 2019, amounts to more than 174 million GEL. Defined contributory pension system enjoys exempt-exempt-exempt (EEE) tax regime, which means that contribution, accrued profit and distributed pension are exempted from taxes.
The reform is expected to have important economic implications, including encouragement of savings and development of long-term financial resources thus boosting capital market development and ultimately contributing to country’s economic growth. Under the new system we expect that the replacement rate, which is currently roughly around 20 percent, will increase significantly and for median income person it will reach 50 percent. The reform will ensure adequate income level at the retirement and fiscal sustainability of pension system, thus reducing dependency on the state budget.
CE: What potential do you see in Georgia for Azeri and foreign investors in general? Which spheres of the economy in Georgia are nowadays the most important for development?
Natia Turnava: Georgia is a country of swift, effective and prudent reforms which has managed to gain international momentum and then also maintain it by prudent policies, predictable political setting and one of the more stable macroeconomic environments.
We have a full set of fundamental investment advantages – Georgia is one of the easiest places in the world in terms of Doing business. Georgia is safe and secure destination for every Investor equally, including of course Azeri businesses, who are very successful and active in our country. Georgia has low costs of operating business. And most importantly, Georgia is a natural hub connecting east and west and has a duty-free access to more than 2.3 billion consumer markets through its strong FTA network amongst others, includes both EU and China.
And in terms of further potential – There is no unique model to tackle development threats, but there are good principles and readiness of the Government and policymakers to be consistently committed to designing and applying better strategies. We, I believe are that kind of a dedicated Government and are really optimistic about the future in terms of Trade, Investments, Productivity and Growth.
Currently we are witnessing a major ongoing transformation of Georgia to a knowledge economy, when we are shifting from import substitution and traditional sectors to knowledge and technology-intensive businesses. This, of course, is mainly driven by our young and talented labor and clear interest of both Georgian and international investors, but let me also highlight the importance of Government’s proactive involvement by investing considerable amounts in our infrastructure and education to support tomorrows demands of large-scale impact investments.
CE: Despite the growth of turnover between the two countries, official Baku and Tbilisi affirm the importance of expanding economic cooperation, including in non-energy and other sectors. Which ways for turnover growth can Georgia suggest?
Natia Turnava: As you have highlighted, in recent years we have observed positive trends in trade and economic cooperation between Georgia and Azerbaijan. Based on statistical data of 2018, the trade turnover amounted to 1 089 mln USD, Azerbaijan is the 3rd largest trading partner for Georgia with the share of 9% in total turnover. Export of Georgia to Azerbaijan amounted to 503 mln USD, increased by 85% and import of Azerbaijan to Georgia totaled 586 mln USD, increased by 6%. Azerbaijan is Georgia’s first largest trade partner by export, with the share of 15% in total export and 4th largest trade partner by import, with the share of 6% in total import.
On the one hand, Georgia’s major exports to Azerbaijan include: motor cars, cigarettes and tobacco products, medicaments, bovine animals, bars and roots of iron, non-alcoholic beverages, ferro-alloys, trucks, plastic goods etc. On the other hand, Georgia imports following products from Azerbaijan: oil gas, oil and oil products, electricity, concrete, copper ores, bars and roots of iron, gypsum, onion vegetables, wagons etc.
Despite the fact, that Georgia and Azerbaijan truly enjoy active cooperation in trade, it is obvious that our export needs to be more diversified and there is room for further strengthening and deepening bilateral economic ties in this direction.
For instance, in order to promote and intensify trade and economic relations between our countries, we propose to organize trade missions, business forums and fairs, which will contribute to raise awareness and provide information about latest developments in the economic sectors of both countries.
Additionally, acknowledging the high importance of collaboration for enhancing bilateral economic relationship, both sides can exchange relevant experience and promote export and trading opportunities in the sectors in which Georgia and Azerbaijan have comparative advantages. In this regard, both sides are considering the possibility of establishment of the working group with the aim to study export potential of Georgian products in Azerbaijan and vice versa. This will provide an important platform to exchange a list of competitive export products for further dissemination to the interested businesses in respective markets and share information about the companies interested in trading Georgian and Azerbaijan products.
Let me highlight, once again, that Georgia considers Azerbaijan as one of the important trade and economic partners and by our joint efforts and through implementing above mentioned activities, I am convinced that progress and positive changes can be reached towards bilateral trade diversification and expansion.
CE: Does Georgia support the European Commission’s efforts regarding the creation of the single energy market of the EU?
Natia Turnava: Georgia strongly supports creation of the single energy market for EU that aims to create a stable regulatory and market framework contributing to the transparent and non-discriminatory equal rights for the parties, efficient operation of energy market and ensuring the security of supply of the energy.
However, taking into consideration Georgia’s particularity, meaning that due to geographic location we have no common physical border with any EU member country, we are limited with the ability to be part of EU single market. Establishment of main postulates of EU energy market principles requires the thorough assessment of the current state of play, interactions between market players and the implications of reform options in energy sector of Georgia. We consider it as a precondition to secure smooth transition to an efficient and liberalized energy market, especially when neighboring countries are not committed to follow the same path and scales.
Energy system of Romania or Bulgaria shall be considered as a place of connecting Georgia to Europe via the sub-marine cable. It is noteworthy that in the nearest past years the project of connecting energy systems of Romania and Turkey via the sub-marine cable was actively discussed, but was not implemented. Presumably, these discussions have left some traces, which can be successfully applied to Georgia. Currently, in response to the invitation made by the Energy Community, on 30th of January 2019 JSC “Georgian State Electrosystem” officially submitted the Black Sea Sub-marine Transmission Line Project (Georgia – Romania: Jvari - Anaklia – Constanta) to the Energy Community Secretariat, which emphasizes its regional character, importance for provision of security of supply and promotion of development of renewable energy sources. For submission of the Project in form of PEPI (Projects of Eastern Partnership Interest) projects, the relevant application form was filled in and the data of electricity generation and consumption in Georgia was additionally updated.
CE: In your opinion, what are the opportunities for developing potential of the Baku-Tbilisi-Kars project and other joint regional transport corridors. Which joint initiatives can be implemented with China and the EU, as well as within the Caspian Sea – Black Sea corridor?
Natia Turnava: Baku-Tbilisi-Kars project is important not only for the three countries but the entire region as it fills the missing rail link between Georgia and Turkey and creates an alternative direction for freight transportation between Asia and Europe. The railway line was officially opened in October 2017 and at the moment, pilot shipments are being carried out. Once fully operational, Baku –Tbilisi-Kars will enable us to capture more freight flows through Georgia in light of fast East-West trade growth.
Georgia is actively involved in other regional initiatives that aim at developing transport and transit routes between Europe and Asia. In this regard, Middle Corridor, Lapis Lazuli, Caspian Sea-Black Sea Corridor are worth mentioning.
Lapis Lazuli Route Agreement (signed in November 2017) envisages the facilitation of freight transportation between Afghanistan, Turkmenistan, Azerbaijan, Georgia and Turkey. The first pilot shipment was carried out by road in December 2018, which was a good start for identifying the existing bottlenecks and further actions for successful implementation of the said project.
Caspian Sea – Black Sea corridor is a comparatively new initiative, which involves Turkmenistan, Azerbaijan, Georgia and Romania. This project complements the existing similar connectivity initiatives and intends to contribute to the establishment of better transport links from Central Asia to EU through the Caspian and Black Seas.
Another important corridor which we are currently developing is the Middle Corridor stretching from China to Europe. The first railway transportation from China towards Georgia was carried out in 2015 and since then a lot has been done to simplify railway procedures between railways, offer through rates and one-stop-shop services on the corridor. The use of the Middle Corridor has significantly increased over recent years. Launch of regular train service from Lianyungang Port to Istanbul in November 2018 is an important step forward for development of the Middle Corridor that shall contribute to further increase in freight volumes in future. The Middle Corridor as one of the shortest routes between Asia and Europe, has great potential for its further extension via Bulgaria and Romania to EU corridors and to the Balkan countries.
Thank you for the interview
