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www.pmcg-i.com. Challenges and Opportunities of Georgia’s Economy Mr. Aleksi Aleksishvili Chairman of Policy and Management Consulting Group (PMCG) Former Minister of Finance of Georgia 2005-2007 Former Minister of Economy of Georgia 2004-2005. April, 2013. Country Overview, 2012.

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  1. www.pmcg-i.com Challenges and Opportunities of Georgia’s Economy Mr. Aleksi Aleksishvili Chairman of Policy and Management Consulting Group (PMCG) Former Minister of Finance of Georgia 2005-2007 Former Minister of Economy of Georgia 2004-2005 April, 2013

  2. Country Overview, 2012 • Area – 69,700 km² • Population – 4.5 mln • Capital – Tbilisi (1.2 mln) • GDP – $ 15829.7 mln (current prices) • GDP per capita – $ 3519.6 (current prices) • GDP real growth rate– 6.1% • Inflation – -2.1% (Feb, 2013) • Av. Exch. Rate USD/GEL=1.66 Kazakhstan Russia Georgia Azerbaijan Armenia Iran Turkey Iraq Syria

  3. GDP Growth • GDP growth rate reached 12.3% in 2007; • Despite the global economic crises and the conflict with Russia in 2008, the country has proved to be highly resilient to political and external economic shocks; • GDP growth rate in 2012 is 6.1% • Contribution from export to GDP 2012 is 15%, which is higher compared to 2007 (12.1%); • Contribution from FDI in 2012 GDP is 5.5 %, which is significantly lower compared to 2007 (20%); • The main sectors, which contributed in GDP 2012 were Manufacturing(17.2%), Trade (16.6%), Public Administration (11.2%), Transport & Communication (10.6%), Agriculture (8.4%), Construction (7.3%), Health & Social Work (6%).

  4. Foreign Direct Investments • FDI sharply increased from 2004 and over reached $2 billion in 2007, which was 19.8% of GDP; • Denmark, Netherlands and Czech Republic became the top investors by investing in 2007; • After the Russian-Georgian conflict in 2008 and global financial crises in 2008-2009 FDI shrank; • In 2012 FDI indicator is reduced to $ 865.2 mln, which is just 5% of 2012 GDP; • Germany, Netherlands and Turkey became the top investors by investing in Georgia in 2012.

  5. External Trade, 2012 • The volume of export and the volume of import increased, but the growth of import volume exceeded the growth of export volume; • Georgia recorded negative trade balance in 2012 (- $5465 mln) • The trade deficit of 2012 is the highest one in the period of 2000-2012; • Top three trading partner countries by export in 2012 were Azerbaijan (26%), Armenia (11%) and USA (10%) and three major exported commodities were cars (25%), Ferro-alloys (11%) and nitrogenous fertilizers (6%); • Top three trading partners by import were Turkey (18%), Azerbaijan (8%) and Ukraine (8%) and three major imported commodities were petroleum products (12%), cars (8%) and petroleum gases (3%).

  6. Public Revenue, Tax Burden and Informal Economy • Significant improvement in tax control and administration since 2004 • In spite of easing the tax burden, the ratio of tax revenues to GDP increased from 12% in 2003 to 25% in 2012; • Tax Revenue - the major source of revenue, 89% of total revenue (2012) • Informal Economy has been reduced from around 65 % to 10% of GDP *Tax Effort is defined as Tax Revenue / Gross Domestic Product

  7. Public and External Debt as a Percentage to GDP • The coefficients of total public debt and external debt as a % to GDP had decreasing pattern in 2000- 2007; • The coefficients of Public as well as External Debt as a % to GDP increased in the period of 2008-2009; • The coefficients of total public debt and external debt as a % to GDP have again decreasing trend since 2011 again.

  8. Economic Activity Rate & Employment Statistics, 2002-2011 • Unemployment rate has been increasing over time – one of the biggest challenge of the government; • The structure of employment in 2011: hired (32%) , self-employed (52%), not-identified worker (1%), unemployed (15%); • Increase in unemployment due to structural reforms in Public Sector and State Owned Companies during first 2 years of reforms.

  9. Financial Sector • The financial sector is dominated by banks (more than 95%); • The banking sector is one of the most dynamic sectors of the economy ; • There are 19 commercial banks in Georgia; • In 2012 , 18 Georgian banks and 2 branches of foreign banks had final ownership with to foreign capital participation; • More than 50% of total banking sector capital is owned by international companies.

  10. Financial Sector

  11. Financial Sector

  12. Current Challenges & Opportunities Current Challenges… Looking Ahead Scaling up the Economy – further Integration Increasing competition - achieving Competitive Input Prices Increase the level FDI Decrease the unemployment Further improve the business environment Strengthening public institutions Improve rule of law and legal system • Social Vulnerability • High Trade Deficit • Foreign Direct Investment • External Debt • Unemployment • Dollarization • Political Stability • Rule of Law and Legal System

  13. Policy and Management Consulting Group E-mail: office@pmcg.ge www.pmcg-i.com Phone: +995 322 921171

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