Strategically located in the Caucasian region, Georgia controls the access to the Black Sea and the
access ways in the south of Caucasian Mountains. Although the events in August 2008 affected the country, the country’s economy is growing which determined the authorities to encourage foreign investments through their decisions. In 2009, Georgia was the eleventh country in the world in the “Ease of Doing Business Index”, better than in 2008, when the country held the 16th rank. Being aware of the advantage of its geographical position, Georgia is currently investing in the modernisation and extension of the transport infrastructure.
Since the fall of USSR in 1991, Georgia has been an independent country. It is divided in 9 administrative regions (mkharebi). Two regions are autonomous (acknowledged by the Georgian constitution): Abkhazia with the capital at Sokhumi and Adjaria (Adjara) with the capital in Batumi. If Georgia still holds the control in Adjara, Abkhazia will be completely independent. South Ossetia is a self-declared independent province whose independence has not yet been acknowledged. In 2008, the province was subject to an armed conflict between Georgia and Russia. Because of these territorial issues, Georgia doesn’t control these regions which also affects transport flow management.
Relationships with Russia are tense and have negative repercussions on the Georgian economy. In 2006, Russia banned wine import from Georgia and also increased gas price for Georgia generating a growth of the inflation ratio. (Over 80% of the wine exported from Georgia went to Russia, the same happens in Moldova).
Georgia withdrew from the Commonwealth of Independent States (CIS) following its 2008 conflict with Russia and is now focused on the European Union where it joined other countries in signing the Eastern Partnership.
Georgia is an emerging country with a gross national income (GNI) per capita of USD 2.090. After having declared its independence in 1991, the country’s economy plummeted as a consequence of civil war and the loss of its preferential status on the Russian market, as well as large budget transfers from Moscow. Consequently, production fell by 70% and exports by 90%, its economic situation being declared by the World Bank as “the most serious decline of a transition economy”. However, strong economic growth potential relies on natural resources. The latest investments in oil exploitation have indicated a significant potential in what concerns gas and oil volumes. Other important resources are manganese, iron, charcoal, copper, gold, granite, chalk, marble and mineral waters.
Economy: the only country with significant short-term progress
After a difficult period in the ‘90s, Georgia had a record growth of the GDP in 2006 (10%) and 2007 (12%). “Before the conflict in August 2008, Georgia’s economy knew a strong growth, a period when the GDP recorded annual growths of 10%”, World Bank informs. The increase of public costs, financed by a substantial growth of the taxes which contribute to the GDP, was directed to improving education, health services and infrastructure. The economic strategies supported the private sector in increasing free commercial exchanges and business investments.
From 2004 until mid-2008, Georgia has been implementing complex reforms aimed at reinforcing public finances, improving the business environment, upgrading infrastructure and social services. These structural reforms have generated a fast economic growth of 9% per year, which contributed a lot to rising life standards. Because of the conflict in August 2008, the 2.1% economic growth represented a severe drop from 9%, Georgia recording an economic contraction of 3.2%. Despite the terrible shock which affected gross international resources and despite the pressure on the depreciation of the currency exchange rates, the Government succeeded in preserving the stability of the currency exchange and increased resources to the level prior the crisis.
The Government carried on medium-term reforms and improved the business environment climate by reducing the income interest level and easing fiscal administration, significantly improving customs services and developing a new vision of public finance management.
“The Government’s commitments encouraged the community of foreign investors to support Georgia’s economy. In October 2008, they allocated USD 4.5 Billion for the country’s medium-term economic recovery”, a report of the Joint Needs Assessment (JNA) Evaluation Committee states.
Although Georgia will ask for a significant foreign loan during 2008-2011, its external debts are estimated to remain stable on medium-term. According to World Bank, “Georgia holds the 15th position of the 181 evaluated economies and was among the first 10 reforming countries over the last four years. When Georgia initiated the major reforms four years ago, the country held the 112th position after Armenia, Russia, Kazakhstan and Turkey. In this four years, Georgia climb up the economic ladder and advanced 95 positions being the only country to know such a progress in such short time”, according to World Bank’s “Doing Business” report. Georgia’s incredible evolution, from the 112th to the 18th position, has won the trust of the business sector and has stimulated the investment growth, especially in transport infrastructures.
Transportation
Georgia’s geographical position on the “Silk Road” axis which connects Europe and Asia has helped the country become a traffic leader for cargo shipped through the Caucasus. Since it provides the shortest connections between Europe and Azerbaijan and Armenia and the countries in Central Asia, Georgia succeeds in absorbing transport demands, currently under development.
Although it promotes its strategic position on transport routes, Georgia’s infrastructure urgently needs major reconstruction works. The country’s railways amount to 1,612 km, with 20,329 km of roads, 22 airports, 2 ports, 1.592 km of gas pipes and 1.253 oil pipes (2008 figures).
Georgia is also an important route for pipe transport being crossed by two important pipelines: Baku-Tibilisi-Ceyhan (BTC) for oil and gases and a parallel route: South Caucasus Pipeline.
Since 1998, Georgia has been involved in TRACECA multilateral agreement for the development of the transport route between Europe and Asia and has participated to almost 30 international transport conventions. Currently, transport amounts to around 9.8% of the GDP and the statistical data show growths in transport activities. The Georgian railway network is
managed by the state-owned company Sakartvelo’s Rkinigza – SR (Georgian Railway, GR), which manages trains as well as infrastructure. The company was tendered and sold in 2007. Parkfield Investment British consortium signed a public-private partnership and took over GR on an 89-year period on condition it invested EUR 1 Billion over the next ten years. The agreement was declared null in the autumn of the same year. Following new attempts of privatisation, offers from five companies interested in buying Georgian Railways, Ltd opened in January 2009. These companies where Centre Invest Capital Partner (Russia), Stratton Holding LLS (US), Capital Investment Group (Sweden), East Capital (US), and the Silk Road Group (Kazakhstan).
Railway infrastructure investments
Georgia uses the central area railway line connected to Armenia and Azerbaijan in the east and to the ports of Batumi and Poti. The Georgian authorities plans to invest in the railway system to render passenger and freight transport more efficient , increase the competitiveness level and support the business sector and the industry.
According to a World Bank report, Georgia plans to invest $ 300 Million on short term in the modernisation of the railway infrastructure from Tibilisi to the two ports.
Also related to railway investments, in 2009, the European Bank for Reconstruction and Development (EBRD) granted EUR 125 Million to the railway company for the construction of a line that will go round the central area of the capital Tibilisi. Preliminary costs for the implementation of this project are estimated at over EUR 360 Million. The railway operator asked the European Investment Bank (EIB) to grant a co-financing for the project and EBI will most probably grant part of the project costs. This will improve the efficiency and safety of railway operations in Tibilisi and will permit the reallocation and consolidation of existing railway facilities in the city’s urban area. It will also give an impulse for the city’s reintegration and will increase the the competitiveness level of the railway system, as well as business sector.
The most important railway project is Baku – Tibilisi – Kars line which connects Georgia, Azerbaijan and Turkey.
In November 2007, the Turkish president, together with his counterparts from Georgia and Azerbaijan, inaugurated the construction of this line mostly for cargo transport, especially oil, but also for passenger transport services.
The project includes the construction of 105 km of railways, 29 of which in Georgia and 76 km in Turkey, but also the modernisation of the line section at the border with Azerbaijan, crossing Tibilisi, up to Akhalkalaki. However, there are plans for the line extension. After the finalization of the project, “the line could be connected to Marmaray line (Turkey), thus creating a railway connection to Edinburgh and Shanghai”, David J. Smith, Manager of the Security Analysis Centre in Georgia informs. Officials from Azerbaijan declared that Kazakhstan and China are interested in this project, which, once launched, would enable a much faster access to Europe that the existing Trans-Siberian line.
Reportedly, the construction’s total cost is estimated at USD 400 Million. Turkey and Azerbaijan have financed their own section of line and for Georgia, Azerbaijan granted a 25-year loan of USD 200 Million with an 1% interest per year. Official sources say that USA could also contribute to the project financing in Georgia.
Although the construction was delayed because of the incidents in Georgia, including the war with Russia (which blocked fund transfer and delayed the process), the whole project will be finalized until 2012. “Works on Baku-Tibilisi-Akhalkalaki-Kars line continue, while 26 km of new line, connecting Azerbaijan and Turkey are under development. In Georgia, works are more intense than ever. The implementation of Baku Tibilisi-Kars line project is economically efficient”, Musa Panahov, Secretary of State within the Ministry of Transport in Azerbaijan declared in November 2009.
It is estimated that, once the project is finalized, 3 million tonnes of freight will be shipped on Baku – Tibilisi – Kars line every year. Long-term prognosis show that a volume of 16 million tonnes and over 3 million passengers will be carried until 2034.
by Pamela Luică
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