OECD publishes its recent investment policy review for Georgia, which comes at a very crucial point in history since Georgia is now, like much of the world, facing the unprecedented health and economic consequences of the COVID-19 pandemic.
“The government took swift monetary and fiscal measures to support healthcare provision and liquidity, and assist at-risk firms and individuals – the Review reads - Disruptions to business, travel, remittances and investment are nonetheless likely to have a severe impact on the economy. Private investment, both foreign and domestic, will be essential for Georgia’s economic recovery”.
In this report, OECD calls Georgia’s reform trajectory “nothing short of remarkable”, adding that un under two decades, successive structural, regulatory and economic reforms have propelled the country from one of the poorest post-Soviet stated to an upper-middle income economy.
“Georgia now ranks among the best performers in the world according to international indices on doing business and openness to foreign investment – achievements many countries look to for inspiration” – OECD acknowledges, adding that in recent years, the government has reflected on why these reforms have not facilitated more broad-based economic growth.
According to OECD, the government has continued to adopt a fast-paced approach to reforms in recent years to attract investors and support private sector development, yielding strong GDP growth and an increase in FDI stock to more than 100% of GDP.
On the other hand the Review also focuses on the setbacks and challenges that still persist.
The most recent investment policy review for Georgia highlights that despite important progress, productivity and exports remain low, and unemployment and poverty are still high, particularly in rural areas. As the assessment shows, FDI attraction has been strong relative to the size of Georgia’s economy, but the positive benefits of investment have not been fully realised since most FDI has gone to non-tradable sectors, including transport infrastructure, real estate, construction and financial services.
“These sectors are important contributors to economic growth, but have not sufficiently advanced job creation or productivity, and may be limited by Georgia’s relatively small domestic market. With the exception of recent growth in tourism and renewable energy, FDI in export-oriented sectors, including manufacturing and agriculture, has remained flat and far below potential” – OECD argues.
According to OECD, the government’s unparalleled success in removing many of the obstacles to doing business is commendable. But such reforms by themselves will neither assure a steady inflow of FDI nor maximise the potential gains from investment. Further reforms will need to address gaps in infrastructure and connectivity within the country, and upgrade the skills of the workforce.
“Improving not only regulatory constraints but the whole investment climate – including the wider legal framework, investment promotion strategy and institutions, policies to promote responsible business conduct, and impediments to growth of priority sectors – will help Georgia attract FDI that can have a positive impact on productivity and inclusive, sustainable growth” – OECD argues.
