Georgia: Saakashvili Administration Turns Global Economic Crisis to Its Advantage

On a recent morning at Tbilisi's central construction market, the labyrinth of passages and storefronts were largely quiet. Just three months ago, Edik, a 56 year-old shop owner, was making 700 lari ($419) in sales per day. These days, amid the global economic slowdown, a typical day generates as little as 50 lari (roughly $30) in income.

"Yesterday, I made 30 lari (about $18)," he laughed.

For Georgia's fragmented opposition parties, the downturn seemed to offer a chance to attract new support. But even as they tout a large turnout for an April 9 protest rally, opposition parties appear to be losing out on a golden political opportunity: they have yet to make the country's economic woes a priority issue.

While the opposition focuses on media rights and justice reform, Georgian President Mikheil Saakashvili's administration has been striving to turn the economic troubles to its advantage. And in many ways, the government has succeeded in retaining the initiative on economic issues. In a March 17 televised cabinet meeting, for example, Saakashvili described Georgia as in "a major existential struggle," and stressed the need for $1 billion in foreign investment to avoid an economic meltdown.

"Georgia should be among the several countries listed as quite successful [despite the world crisis], where it is advantageous to invest money. This is our task," he told ministers.
Despite earlier concerns that the Georgian economy would crumble under the double-whammy of war and worldwide recession, local economists are cautiously optimistic that the country can make it through the downturn relatively unscathed. That prospect is helping to bolster the beleaguered Saakashvili administration.

According to a January 2009 report from the International Monetary Fund, the Georgian economy grew 3.5 percent in 2008, and is anticipated to grow 4 percent this year. To meet that target, Prime Minister Nika Gilauri launched a 2-billion-lari ($1.2 billion) stimulus package in January that emphasizes job creation and social welfare protection over defense spending.

One of the stimulus plan's top priorities is shoring up the ailing construction sector. Accordingly, the government is aiming to create up to 30,000 new jobs by carrying out a variety of infrastructure projects. Meanwhile, the Ministry of Labor, Healthcare, and Social Welfare is slated to receive nearly 1.5 billion lari ($898 million, an increase of nearly $120 million from 2008) in 2009, while the Ministry of Defense saw its budget slashed by nearly 600 million lari (over $350 million) to 950 million lari (about $569 million).

At the same time, the government is taking a more activist approach toward the economy. For example, earlier this year, the government bought 55,000 tons of fertilizers from Energy-Invest, a Russian-backed manufacturing company that is one of Georgia's largest companies, to help safeguard the firm's 3,000 jobs after the international fertilizer market crashed late in 2008.

Over the past week, Saakashvili has also made trips to the Georgian countryside, promising farmers free fertilizers and other government aid to help make it through the spring planting season.

The government is counting on $4.5 billion in outside assistance this year to help balance a budget that was heavily dependent on foreign direct investment. Such investment barely cleared $1 billion in 2008, a 50 percent drop from 2007, according to government data. No figures are available for 2009 yet.

American economist Edward Raupp believes that the government's stimulus package will provide some relief in the face of lost foreign direct investment (FDI). "I think it will have an effect," said Raupp, who is chancellor of Tbilisi's University of Georgia. "It won't replace $1 billion in FDI, but it will go a long way."

The Georgian banking sector -- in particular the country's two largest banks, Bank of Georgia and TBC -- have also received hundreds of millions of dollars in assistance from the International Finance Corporation and European Bank for Reconstruction and Development. The aid is being used to shore up liquidity and to encourage lending.

Construction and real estate development are the two sectors that fueled much of the Georgian banking industry's rapid growth. Shota Khatiashvili, an executive at Tbilisi's Bageby City Group, a high-end real estate developer, notes that the crisis has depressed both prices and consumer demand, but he added that property sales are still showing signs of life. The company has sold three flats in Tbilisi this year -- compared with two per month before the crisis -- and one in the Black Sea port city of Batumi. "[W]ith the new price[s], the sales are still there," Khatiashvili said. "They are just smaller."