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Billions of USD Investments Coming to Georgia – Why Country Still Remains in Crisis?

Surging inflow of investments has not improved the living standards in Georgia. Over the past years investment inflows to the country has been ranging from 1.5 to 1.7 billion USD, however, all these funds are sedimented in hands particular group of people, the country and Georgian citizens do not benefit from these investments.

Specialists assert that the exiting plan of distribution of revenues is the main reason of inefficiency of investments. People remain in poverty and financial resources are less directed to production development.

According to preliminary indicators of Geostat, national statistics service of Georgia, foreign direct investments (FDI) in 2016 made up 1.645 billion USD, up 5% compared to 2015. We had better indicators in 2014 in this respect. In the mentioned period, specified amount of FDI inflows made up 1.7 billion USD.

It is frequently said that 2 billion USD investments are required for economic advancements. Over the past years investments volume is striving for this indicator, but instead of progress, the economy remains in crisis. Specialists also prove this tendency. Academician Avtandil Silagadze noted that several sectors of economy are demonstrating recovery signs, but our citizens cannot enjoy benefits of this process.

«We have a growth in statistical indicators, but conditions of our citizens are not improved anyway, because revenues are not distributed proportionally in the country. Investment inflows has not created new job places. As a rule, distribution of revenues are calculated under Gini coefficient. According to this method, the revenue distribution indicator is good if it is about 0.25, while in Georgia this figure is over 0.40. This signifies revenues are not shared to wide circles of our society, like other countries.

Investments are sedimented in a small group and our citizens cannot receive benefits. A tiny part of our society receives huge revenues, while an absolute majority of our citizens have very low revenues or they do not have revenues at all», Silagadze said and added that despite a growth in investment inflows, a major part of our citizens remains dependent on low salaries and pensions.

«When capital is invested, but the project does not work, naturally,  national wealth cannot be created. We should try to put our revenues in production, but if the economic policy does not change, we will  have neither job places  nor revenues. When buying imported goods by our revenues, this signifies that we create job places abroad, not in Georgia.

Therefore, I say that economic policy should change. We should care for development of national production. In other case, we will have always to wait for assistance from abroad», the Academician noted.

As to specific fields, where investments are made, power sector is one of them, where projects were developed and the working process is continued even today, Silagadze said.

«Communications sector is developed and this requires additional investments. We have progress in development sector, while in 2015 the situation was hopeless, in practice. If investments grow in this field, this is only comparative effect and no essential changes are recorded.

A growth of investments is more noticeable in transport field, because railroad works to the direction of Turkey have come to a finish line.  We do not have serious difference in investments as compared to previous years, but some job is performed anyway, but the country does not receive real benefits», Avto Silagadze said.

Analyst Merab Janiashvili overviews the existing problems with distribution of revenues. Investments made in Georgia serve major business interests and are not directed for economic recovery of the country. Therefore, this tendency makes negative influence on economic condition of our citizens, he said.

«The fact is that investments do not create job places in the country. We remember the expression by former Prime Minister Nika Gilauri — every 50 000 GEL  creates one job place. This was his opinion and he was right. In 1990s South American countries recorded facts  an inflow of huge capital, but unemployment level increased, on the contrary. Research works have showed that investments had not been used for improvement of production in those countries.

Investments in Georgia are directed to power sector and finance sector. The ratio of investments in agriculture sector, where 50% of Georgian citizens are involved, accounts for about 1% every year. Consequently, we cannot receive profits from investments. All these funds are directed to major business sector», Janiashvili noted.

Over the past years, the misbalance in distribution of revenues grows — only several persons have an access to investments and this money is not spent on creating national wealth.

«Nobody can say what benefits our citizens have received from the fact the banking sector’s profits have risen by 20%.

Naturally, this is related to a growth of specific business and is not reflected on welfare of our population. Economic policy should be revised evidently, but nobody think of this — neither current government and nor the previous Authorities did. Meanwhile, major business enlarges further, while medium business bears losses», Janiashvili noted.

Over the past period, specialists are not content with investment indicators, despite their growth. They think accents should not be made on statistics, because there are many problems in state economy and the existing situation remains unchanged, in practice.

Lack of export goods is one of the reasons of the mentioned problem, analyst Giorgi Ghaghanidze said.

«In reality, we turn around 1.5 billion investments. Therefore, nothing will change if investment inflows are about 1.6 billion-1.7 billion USD. We have not surpassed the 2007 indicator, when investment inflow marked 2 billion USD. Currently, the country has a deficit of export goods and this is the most painful challenge. Investors do not feel safe. Georgian government has not shaped environment, where investors would feel comfortably.

There was an interest in finance sector, but we do not have a breakthrough over the past period. Only small corrections and changes cannot ensure economic growth», Ghaghanidze said.