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Setting the scene

In December 1922, Georgia was absorbed into the Transcaucasian Soviet Federative Socialist Republic (TSFSR). In 1936, when the TSFSR was abolished, it became a full union republic of the Union of Soviet Socialist Republics (USSR).

Georgia regained its independence in 1991, but at a high price. The country was plunged into civil war, the economy deteriorated, and industry had become stagnant. Things slowly began to improve in 1992 when Eduard Shevarnadze, a native Georgian, former Soviet foreign minister and the Georgian communist party boss in the 1970s, returned to the republic. He become President in November 1995 following a new constitution which established an election law approved by Parliament and a strong executive Presidency. Shevarnadze has managed to survive an assassination attempt, straddle a political minefield at home, and convince the west that Georgia has a future worth investing in.

Since 1994, following years of economic decline related to the wars in Abkhazia and Chechnya in the North Caucasus, and the disintegration of the USSR in December 1991 which caused the disruption of traditional trade with other Soviet republics, economic recovery has been stronger and faster.

In 1994, reinforced by a number of reformers, the Government accepted a macroeconomic stabilisation programme as condition for credits from the International Monetary Fund (IMF). From 1995 the Government, headed by President Eduard Shevarnadze, started a phase of economic renewal with a deep reform programme that created a stable macroeconomic situation. His Government has drawn up a plan for social and economic development for 1996-2000, supported by agreements with the IMF and The World Bank.

After several years of negative growth, in 1995 Georgia's economy achieved three per cent positive growth in Gross Domestic Product (GDP), followed by ten per cent in 1996 and 11 per cent in 1997. The inflation rate started to fall from 50,000 per cent in 1994, to 57 per cent in 1995, 13 per cent in 1996 and ten per cent in 1997. In September 1995, a successful introduction of the lari, its own currency, helped to curb inflation.

Georgia has been making rapid progress on the legislative front. Since 1996, Parliament has passed a list of laws covering such areas as tax codes, banking, privatisation, landownership, foreign investment and monopolies. In 1996, the new foreign investment law was introduced, providing the legal framework to establish favourable conditions for foreign investors. Indeed, foreign investment started to catch up, reaching US$160 million in 1996. In 1997, private investment was $200 million excluding credits from international organisations and lending institutions.

Many financial institutions had acknowledged Georgia's economic policy successes and assisted it with loans, credits, grants and technical help.The IMF, The World Bank, and the European Bank of Reconstruction and Development (EBRD) made their contributions, as did the governments of France, Germany, the Netherlands, Switzerland, Japan, the United Kingdom (UK) and the United States (US) who helped finance many projects.

The privatisation process began in 1992 with the transfer of the housing stock from the state to the population, and most of the land to the farmers. Small companies and small businesses had been privatised the same year. In 1996 the extensive restructuring of the energy sector took place; the whole sector is due to be privatised.

The Government is giving priority to integrating Georgia into the international community. Georgia signed a partnership and co-operation agreement with the EU in April 1996. In the same year it was granted observer status with the World Trade Organisation (WTO), with the possibility of full membership.

Despite its rapid progress, Georgia is still facing a few severe structural problems. A shadow economy (in 1997, about 40 per cent) and unreported income, a problem with unpaid taxes, corruption which threatens to undermine the rule of law and constitutional democracy, and an inability to meet its external debt repayments means the economic situation remains fragile. However, Georgia is now well-placed to be a prosperous and growing market economy. As political stability has been achieved, the Government took decisive action in the areas of macroeconomic stabilisation and structural reforms.

Georgia is expected to become one of the principal passageways for Caspian oil and gas to international markets. A $315 million western route pipeline through Georgia is already two-thirds built and expected to be completed by late 1998. The Caspian Sea has oil reserves estimated to be bigger than those in the US and potentially as great as Kuwait's (up to 100 billion barrels). Big and long-term expectations are related to this route - investment in construction of railroads and highways, reconstruction of the Black Sea ports and modern infrastructure.

Georgia's other traditional sectors which have in the past dominated the economy are waiting for investment - the food sector with its citrus fruits, vegetables, tea, grain, corn, tobacco and wine, a broad manufacturing base producing aircrafts, cars, railway engines, and computers among others, the chemical industry, and tourism with its great potential.

Key economic indicators
Area (Sq km) 69,500
Population (m) 5.4
GDP/Capita (1995) US$408
President Eduard Shevardnadze
Currency lari /: 1US$ 1.3 (29/05/97, National Bank of Georgia)

Georgian Investment Centre
Georgian textile and garment industry overview

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