Georgia and Switzerland are twins in all initial development conditions: size of territory and population, endless variety of natural and climatic conditions, ideal geographical location for the development of any regional transit. At the same time, both sisters can boast of their multiculturalism (protection and development of cultural divercity in a particular country): both of them are multinational and multi-religious with centuries-old traditions of national tolerance and freedom of religion (see “Is Georgia similar to Switzerland?”).
However, after the collapse of the USSR, all this did not turn Georgia into Switzerland and even did not bring it closer. Let's see why.
Firstly, the Georgian economy and society are characterized by a clearly expressed dualism, in which the two parts are largely isolated from each other and live by themselves. At one side is a modern economy based on Western modern technologies, people with good academic and educational backgrounds who are interested in both continuing economic reforms and the rapid infrastructural development of Georgia. On the other side is the traditional economy based on conservative, outdated Soviet tech, people who know their work in agriculture, tourism, construction and other sectors very well, but are minimally aware of the importance of business planning, marketing, branding and others instruments of a market economy.
As long as these two parts of Georgian society and economy live separately from each other, Georgia is slowing down and will constantly slow down while a middle class - the basis for the economic prosperity of any democratic country - will be nothing more than a pious wish. And, although the changes are neither shaky nor slow, the modern sector is not yet able to “digest” the traditional one. Still, we must recognize the successes of the modern Georgian economy, its financial, infrastructure, construction sectors, export development, high economic growth and trends in FDI flows. All this, without a doubt, has a positive impact on the society, including its traditional part.
Over ten years, the level of poverty in Georgia has almost halved, from 30 to 15% (according to the annual report of Prime Minister Irakli Garibashvili to Parliament on June 30 of the current year). Still, many people live below the poverty line, but in raw numbers this means that 535 thousand people managed to “jump out” of the poverty trap. It’s a huge number, especially for such a small country. A rapid growth of GDP per capita from 4500 to 8200 USD in 2020-23 was the main reason for Georgia’s current success. Apart from that, in 2022, the current account deficit of the balance of payments hit record low (-4.1%), reflecting the dependence of the economy and the country on imports and cash receipts from abroad. Ten years ago this figure was twice as high, that is, twice as bad. Until recently, the Georgian lari was constantly gaining its value that is good for the rural population as imports were becoming cheaper. But exports are suffering at the same time, and the price of Georgian products, including agricultural, is hiking on global markets losing their competitiveness.
These are all absolutely remarkable economic achievements. But I would say that the quality of growth is far more important to me, that is, how growth affects the standard of living and employment of the traditional part of society in modern Georgia. Alas, but large-scale infrastructure and investment projects are very importance for the state budget, for large companies and corporations, for international transit, but indirectly having a relatively small affect on the life of traditional society. Of course, it’s good that one can travel from Tbilisi to Batumi faster, and it will be even faster. But this can’t solve the deep economic and social problems of rural areas and the population.
For this reason, the state is trying so actively to support small and micro business projects in Georgia. Once again, I liked the final statistics of the “Produce in Georgia” program within the framework of which 11 thousand mini-projects to create 62.5 thousand jobs have been financed since 2014, on average, each such project was financed by about GEL 250 thousand (less than $100 thousand). These numbers are small for rural areas and a patriarchal society, but in my opinion, are more important than the multi-billion dollar infrastructure projects.
I’d like to add that in the last two years a sharp increase in migration from the post-Soviet space to Georgia for obvious reasons boosts revenue inflows and investments into the traditional sector. According to the National Agency Of Public Registry, over the past year and a half, more than 20 thousand Russian citizens have registered as individual entrepreneurs in the country. If each pours at least 10 thousand dollars into the business (most likely, they have invested or will invest much more), in this case the total investment will exceed $200 million.
But for the traditional economy, mass small and medium-sized investors are much more important than strategic ones, as they bring not only money, but expertise, experience, business planning, and understanding how a market economy works. At the same time, investments are not only pouring money in the real sector, production/tourism but in the purchase of a personal apartment, a house, land for private construction. For example, over the past year and a half, Russians have bought almost 10 thousand apartments in Georgia. But Georgians should not worry about increased housing prices, in fact, it’s good for the locals. Developers will pay off the banks, start new projects, create new jobs and will inject a new impetus into further economic growth.
Newcomers should find the correct algorithm for relations with local partners, based not on concepts, but on the law and professional business documents (in Georgia this is not at all difficult). Unfortunately, as I have seen in recent months since returning to Georgia, many investors still move through disappointment. The first stage is an extraordinary feeling of euphoria from nature and local hospitality are a compelling reason to immediately buy real estate for your family, and at the same time to start a small but always, as local partners believe, a very promising business. The second stage begins with repairs or construction of low quality services, but with cosmically inflated estimates and frequent deceptions, if the customer does not personally control the process. At the same time, hidden defects are revealed in the business, and its opacity along with insufficient financial literacy of the local partner, causes inevitable losses and even to the loss of acquired property. Finally, at the third and final stage, the disappointed investor sells his assets at a large discount and runs away from Georgia. Over the past decade, I have met dozens of such disappointed investors from Germany, Russia, Iran, Turkey, Ukraine, Poland and other countries. Everyone shared their own heartbreaking story, they are all different in content, but very similar in essence.
Secondly, Georgia has to be Singapore to become Switzerland. The Georgian state and government face the same problems as any country that has recently appeared on the political world map. They were effectively and quickly resolved in Singapore, where Lee Kuan Yew, the author of the Singapore miracle, introduced a set of basic rules that ensured Singapore's survival and guaranteed its success and prosperity. Honesty, Meritocracy and Pragmatism! Honesty is necessary to combat corruption and imperfections in the activities of government and law enforcement agencies. Meritocracy means that the most capable citizens should be chosen to govern the country and not than members of the ruling class and power elite. Pragmatism means copying the world’s best practicesto use and adapt in national economy and society.
Thirdly, I believe Georgia should focus more on the economy, and not only on democracy (without forgetting about it). Primarily, any country must develop economically and form a middle class, and only then a full-fledged democracy should be established. “Unlike American political commentators, I do not believe that democracy unconditionally leads to development. I believe that the country needs discipline more than democracy. An excess of democracy undermines discipline destroying the conditions needed for development.” Did the words of Lee Kuan Yew spoken in 1992 lose their relevance, including for Georgia? But I’d like to add that neither autocracy, nor authoritarianism and democracy can guarantee progressive development and a lot of additional conditions are required.
The American and European political elites treat Singapore with some disdain, considering it not a democratic country, but an autocratic regime (an Autocracy is a state/government in which one person possesses unlimited power), although Singapore's autocrats always come to power through open, direct and free elections with maximum support from the electorate.
By the way, despite the neglect of the elite, the dominance of autocrats has never prevented transnational companies from pouring huge investments in Singapore or, for example, in China, and not in India. Do you know why? It is a myth that foreign investments are made in the countries with democratic values. It’s not true, they go where their investments will be protected, where the local government will ensure compliance with pragmatic laws with a strong hand, where there will be no difficulties with the local workforce such as trade unions, socialists or communists. Do you remember about Lee Kuan Yew's "Pragmatism"?
Andrei Maksimov - scientist, journalist, author of blogs in "Коммерсант NEWS" and "Caucasus Business News"