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National Competitiveness Report Georgia 2012/2013 Toward a Multi-Sector Regional Hub

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National Competitiveness Report Georgia 2012/2013 Toward a Multi-Sector Regional Hub NATIONAL COMPETITIVENESS REPORT GEORGIA 2012/2013 TOWARD A MULTI-SECTOR REGIONAL HUB National Competitiveness Report Georgia 2012/2013 TOWARD A MULTI-SECTOR REGIONAL HUB Tbilisi, Georgia 2013 ISET Policy Institute is one of the first university-based think-tanks in the South Caucasus. It is based at the International School of Economics (ISET) of Ivane Javakhishvili Tbilisi State University (TSU) in Georgia. Established in May 2011, ISET-PI builds upon ISET’s academic strength and TSU’s tradition of excellence and social engagement. Authors: Eric Livny, Andrei Sarychev, Giorgi Bakradze, Irakli Galdava, Giorgi Kelbakiani, Givi Melkadze, Giorgi Mekerishvili Design by Giorgi Balakhashvili Acknowledgements This report was prepared in cooperation with the Economic Prosperity Initiative by USAID as part of a concentrated effort to promote Georgia’s global competitiveness. Special thanks go to Barrie Hebb, Kevin Murphy and Alan Saffery for providing methodological guidance and training early on in the process, to Tina Mendelson for expert opinion and advice, and to Tamuna Kapianidze for helping organize public discussion and promote the competitiveness agenda. Major segments in this report follow the World Economic Forum’s methodology, and we are indebted to WEF for sharing their data and knowledge. Invaluable assistance in the process of data collection was provided by Irina Kvachadze from the Business Association of Georgia, who helped organize more than 30 interviews with the CEOs of the largest Georgian companies. Naturally, we would like to thank all those who agreed to interview for the report and connecting it to the reality on the ground, including current and former Ministers Davit Narmania, Giorgi Kvirikashvili, David Kirvalidze, and Dimitri Gvindadze. The report greatly benefited from a careful review and critical comments by ISET’s professors and members of its International Faculty Committee, including Yaroslava Babych, Michael Beenstock, Michael Fuenfzig, Adam Pellillo, and Robert Tchaidze. ISET Policy Institute staff took part in producing the study and bringing it to publication: Maka Chitanava, Lasha Labadze, Maya Grigolia and Nino Doghonadze. ISET’s Mari Chelidze, Sopha Gujabidze, Teona Khaindrava, Nina Sukhanskaya and Liza Zhahanina helped organize interviews and the concluding conference. Last but not least, our sincere thanks go to Tamara Germanashvili, Tamuna Karosanidze, Fron Nazi, Jason Swantek, and Mari Zabakhidze from USAID’s Policy Advocacy and Civil Society Development in Georgia project for generous financial support, encouragement and flexibility in extending reporting deadlines. The picture for cover page was taken from TRACECA webpage. The report is made possible by generous support of the American people through the United States Agency for International Development (USAID). The contents do not necessarily reflect the views of USAID or the United States Government Contents 3 Contents ExECUTIvE SUMMARY .............................................................................................................................................................................................................................7 1. MACROECONOMIC OvERvIEW ..............................................................................................................................................................................9 1.1 Georgia’s growth performance ...............................................................................................................................................................................9 1.1.1 Labor resources utilization and fixed capital formation ............................................................................................................ 10 1.2 Macroeconomic policy ............................................................................................................................................................................................. 12 1.2.1 Fiscal policy ......................................................................................................................................................................................................... 12 1.2.2 Monetary policy................................................................................................................................................................................................. 12 1.2.3 International trade, balance of payments, and external debt ............................................................................................... 13 1.3 Financial sector ............................................................................................................................................................................................................. 14 1.4 Political risks and weak property rights ......................................................................................................................................................... 15 1.5 The role of democratic checks and balances .............................................................................................................................................. 16 1.6 Taking stock .................................................................................................................................................................................................................... 17 2. GEORGIA’S COMPETITIvENESS PERFORMANCE ........................................................................................................................................ 19 2.1 Georgia’s position in key competitiveness indices ................................................................................................................................... 20 2.2 Georgia in the Global Competitiveness Report (GCR) ............................................................................................................................ 20 2.2.1 The Global Competitiveness Report: an overview......................................................................................................................... 21 2.2.2 Georgia’s progress in the GCR: 2005-2012 ......................................................................................................................................... 22 2.2.3 Georgia in the 2012/13 Global Competitiveness Report ........................................................................................................... 27 2.2.4 Global Competitiveness Indicators: What do they actually measure?............................................................................... 27 2.3 Taking stock .................................................................................................................................................................................................................... 30 2.4 Promoting the competitiveness agenda ......................................................................................................................................................... 30 2.4.1 The Institutions Pillar ..................................................................................................................................................................................... 31 2.4.2 The Infrastructure Pillar................................................................................................................................................................................ 33 2.4.3 The Macroeconomic Environment Pillar ............................................................................................................................................ 34 2.4.4 The Healthcare and Primary Education Pillar ................................................................................................................................. 35 2.4.5 The Higher Education and Training Pillar .......................................................................................................................................... 36 2.4.6 The Goods Market Efficiency Pillar ........................................................................................................................................................ 37 2.4.7 The Labor Market Efficiency Pillar ......................................................................................................................................................... 40 2.4.8 The Financial Market Efficiency Pillar .................................................................................................................................................. 42 2.4.9 The Technological Readiness Pillar ....................................................................................................................................................... 42 2.4.10 The Market Size, Business Sophistication and Innovation Pillars ......................................................................................... 43 2.5 Conclusions and policy recommendations ................................................................................................................................................... 43 3. TOWARD A MULTI-SECTOR REGIONAL HUB ............................................................................................................................................... 45 3.1 Lean and hungry: Social planning on a shoestring ..................................................................................................................................
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