Download - FEAS

FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2005
GEORGIAN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Politic and Economic Environment:
Following the Soviet Union's dissolution,
Georgia has faced a problematic and
disruptive political and economic transition
during which the public sector workforce was
cut by almost half. Given this very difficult
transition experience in the early years after
independence, and uncertain prospects for
regional economic and political stability, the
turnaround in the Georgian economy after
1994 was remarkable. Despite a shock to the
economy from widespread power outages in
the first quarter, GDP growth for all of 2001
accelerated to 4.5%. One of the major
factors accounting for slower growth in the
past several years has been drought that has
a significant effect in view of agriculture's
30% contribution to Georgian GDP.
Georgia is to be on a major new energy
corridor from the Caspian Sea to the Black
Sea-the Baku-Ceyhan Pipeline from
Azerbaijan to the Turkish Mediterranean port
of Ceyhan, which began construction in the
summer of 2002. It is already a key transit
way for 'early oil' from Azerbaijan via the
Baku-Supsa Pipeline that terminates at
Georgia's Black Sea port of Supsa and
commenced deliveries in 1999. Over the next
several years, investment activities
associated with 135 miles of the Baku-
Ceyhan line will spur economic activity in
Georgia (and temporarily higher current
Key Information Contacts
Ministry of Finance of Georgia www.mof.ge
National Securities Commission of Georgia www.nscg.gov.ge
National Bank of Georgia www.nbg.gov.ge
Georgian Central Securities Depository www.gcsd.ge
Georgian Securities Industry Association www.gsia.ge
ECONOMIC RATIOS
Domestic
savings
Georgia
Lower-middle-income group
Trade
Indebtedness
Investment
account deficits). The country should benefit
from its emerging role as a key transit point
for huge flows of Caspian oil that are
projected to move west over the next
decade.
In November 2003, opposition forces
stormed the Georgian parliament and took
over its control. President Eduard
Shevardnadze declared a state of
emergency but soon resigned from office.
On Nov. 26, 2003, Mikhail Saakashvili
announced his participation in the
presidential election and went on to win the
presidency in 2004.
Economic Performance:
GDP rose by and 4.5 and 5.4% in 2002 and
2001, respectively, despite power supply
disruptions early in the year. Ending of the
drought brought a sharp rebound in
agricultural output that helped lift the growth
rate. Services industries, especially transport,
were also quite strong in 2001. Inflation, at
3.4% in 2001, was the lowest since
independence. Tough anti-corruption
legislation has already proved fruitful in
driving the shadow economy down to 30% of
GDP in 2003.
Georgia's current account has been in
persistent deficit in recent years. The current
account deficit is smaller than the trade
GROWTH OF INVESTMENT AND GDP
(%)
80
60
40
20
0
-20
-40
-60
97
GDI GDP
deficit because Georgia has surpluses in
services (including net factor income
payments) and in unilateral transfers
(including non-loan foreign aid grants). In the
capital and financial account, the
transactions are dominated by official aid
loans and by foreign direct investment, much
of which has been, and will be in the next
several years, associated with new oil
pipeline construction.
Over the past four years, Georgia has
attracted as much as US$ 220 million in FDI
(in 1998 when the Baku-Supsa pipeline was
being built) and as little as US$ 62 million in
1999 in the aftermath of the Russian financial
crisis. In 2001, the net inflow of FDI totaled
US$ 100 million, but that is expected to more
than double by 2004 when the Baku-Ceyhan
pipeline investment will be peaking. Perhaps
the most significant development in the
region is the U.S.-backed US$ 2.9 billion
Baku-Tbilisi- Ceyhan (BTC) oil pipeline that
originates in Baku, passes through the
Republic of Georgia, and terminates at
Ceyhan, Turkey. This will greatly accelerate
energy sector growth going forward. 1
1 Economic and Political Overview, County Watch
Incorporated, 2005
98 99 00 01 02 03
* World Bank reports
PAGE 77