Competetive Advantages of , and -

Tbilisi 2019

Research report: Competitive Advantages of Imereti, Guria and Racha- Lechkhumi is elaborated by University, Ivane Javakhishvili State University (TSU) and City Institute (CIG )

Research authors: Ioseb Berikashvili, Ioseb Salukvadze, Otar Kakhidze, Irakli Gabriadze, Davit Petriashvili, Ia Iashvili; Elene Darjania

The authors express their gratitude to the CTC staff for the organizational support in the preparation of the research report. Special thanks go to the governors of Imereti, Guria and Racha-Lechkhumi and all the representatives of the municipalities of these regions, who contributed by providing information necessary for creating this report.

This publication was produced with the financial support of the European Union. Its contents are the sole responsibility of authors and do not necessarily reflect the views of the European Union.

1 Contents

Maps used in the research ...... 2 List of the tables ...... 3 List of figures ...... 4 Spatial Features of the Research Area ...... 6 Introduction ...... 6 Imereti ...... 7 Guria ...... 9 Racha-Lechkhumi ...... 10 Normative and Strategic DocumentAnalysis ...... 18 Pilot Integrated Regional Development Programme 2020-2022 ...... 21 Develoment Strategy of Guria Region 2014-2021 ...... 22 Delimitation of the Functional Region and Identifying Centres of Gravity ...... 27 Outcomes of Singling out Possible Functional Regions ...... 27 Analysis of the Functional Region Formation Factors ...... 29 Centresand Sub-Centresof Gravity ...... 32 Conclusion ...... 36 Analysis of Competetive Sectors in Guria...... 37 Identifying Competitive Sectors in Imereti ...... 52 Racha-Lechkhumi and Kvemo ...... 64 Appendix ...... 80

Maps used in the research

Map 1- Location and compostion of the research region Error! Bookmark not defined.7 Map 2–Versions of probable functional region’s configuration on the research territory ...... 28 Mapა 3–a fragment from the proximity map of throughfare with 20 km. gradation ...... 31 Map 4 - map of the research territory from with 50 km buffer .... 31 Map 5–Tbilisi and Kutaisi agglomerations ...... 33

2 Map 6–Results of the communication matrix of the research region for the first and second class towns ...... 34

List of the tables

Table 1General characteristics of the research region ... Error! Bookmark not defined. Table 2- the number of the subjects registered and active in Georgia according to the regions ...... 14 Table 3–Distrbution of direct foreign investments according to the regions ...... 17 Table 4–Jin’s coefficient according to the regions ...... 18 Table 5–Classification of the centers of gravity ...... 35 Table 6– the number of registerd and active entities ...... 41 Table 7–Location Quotient in Guria...... 41 Table 8–Shift Share Analysis ...... 43 Table 9–Changes in added value ...... 44 Table 10–Calculating the total sums ...... 45 Table 11–the number of guests at the hotels and hotel-like institutions * the number of guests according to the place and purpose of arrival (2017) (comments on the dynamics) ...... 48 Table 12–The number of registered and active enterprises in the trade sector ...... Error! Bookmark not defined. Table 13–Birth and death of enterprises in the construction sector ...... 48 Table 14–The index of survival of the enterprises born in 2015 ...... 48 Table 15- The number of allocation capacity and regional distribution ... Error! Bookmark not defined. Table 16–Entrepreneur survey findings (except indivudual entrepreneurs) . 50 Table 17: the number of the employed in the business sector ...... Error! Bookmark not defined. Table 18: Average monthly wages of the hired labour ...... Table 19 - Imereti–Location Quotient ...... 55 Table 20–Imereti – Shift share analysis ...... 56 Table 21–Shift Share Analysis, VAT ...... 57 Table 22–Calculating the total scores ...... 58 Table 23–Birth and death of enterprises and their survival rate ...... 63 Table 24–Location Quotient calculated according to the number of the employed ...... 68 Table 25–Racha-Lechkhumi and Kvemo Svaneti - Shift share analysis ...... 69

3 Table 26 - Racha-Lechkhumi and Kvemo Svaneti - Shift share analysi, VAT ...... 71 Table 27–Calculating total scores ...... 72 Table 28–Business demography quotients ...... 76

List of figures

Figure 1–Distribution of Gross Domestic Product according to the territorial units (2017) ...... 12 Figure 2–Number of the employed according to the regions (2017) ...... 13 Figure 3– per capita GDP in 2017 (Thousand GEL) ...... 14 Figure 4–Business sector output per person in 2017 (Thousand GEL) ...... 15 Figure 5–Average monthly payment of the hired labouraccording to the regions ...... 15 Figure 6–Investments in the fixed assets according to the regions (2017, mln GEL) ...... 16 Figure 7–Investments in the fixed assets (per capita) ...... 16 Figure 8–Unemployment rates according to the regions ...... 18 Figure 9 - Answer distribution to the question of delimitation of the fuctional region ...... 28 Figure 10–Factors to identify a functional region ...... 30 Figure 11–the population number according to themunicipalities of the research regions (except Kutaisi) ...... 32 Figure 12–Shift in the population of the city of Kutaisi in 1989-2018 . .... 33 Figure 13–Population (in thousands) ...... 37 Figure 14–GDP according to the sectors (in current prices, lm. GEL, % 2017) ...... 38 Figure 15–The number of the employed in the private sector ...... 38 Figure 16– Average monthly payment of the hired labour ...... 39 Figure 17– Overall indicators of the hotel and restaurant sector ...... 46 Figure 18–Investments in the fixed assets ...... 46 Figure 19–Number of employed in the hotel and restaurants sector ...... 47 Figure 20–Population (in thousands) ...... 52 Figure 21–GDP according to the sectors (in current prices, mln GEL %, in 2017) ...... 53 Figure 22 - Unemloyment (Imereti, racha-Lechkhumi and Kvemo Svaneti) 54 Figure 23 - Distribution of the employed labourforce (Imereti and Racha- Lechkhumi Kvemo Svaneti (in thousands) ...... 54 Figure 24–Dynamics of capital flow in the construction sector ...... 59

4 Figure 25–Dynamics of the construction sector ...... 59 Figure 26– Investment dynamics in the construction sector ...... 60 Figure 27–Employement dynamics in the construction sector ...... 61 Figure 28–Salary dynamics in the construction sector ...... 61 Figure 29–Construction permissions issued ..... Error! Bookmark not defined. Figure 30–Licensed construction according to the area . Error! Bookmark not defined. Figure 31–Population in Racha-Lechkhumi and Kvemo Svaneti (in thousands) ...... 65 Figure 32– GDP according to the sectors (in current prices, mln., GEL % in 2017) ...... Figure 33–The number of the employed in business sector ...... 66 Figure 34–Average monthly salary of the hired labour .... Error! Bookmark not defined. Figure 35–Hotel and restaurant sector in Racha-Lechkhumi and Kvemo Svaneti, investment dynamics ...... 73 Figure 36 -Hotel and restaurant sector in Racha-Lechkhumi and Kvemo Svaneti, employment dynamics ...... 73 Figure 37 -Hotel and restaurant sector in Racha-Lechkhumi and Kvemo Svaneti, employment dynamics, salary dynamics ...... 74 Figure 38 The number of guests according to the places of arrival in hotel and hotel-type establishments sector in Racha-Lechkhumi and Kvemo Svaneti; ...... 75 Figure 39–The number of foreign guests at the hotels and hotel-type establishments ...... 75

5 Spatial Features of the Research Area

Introduction

The present paper deals with the territory encompassing three historical- geographical parts of Georgia – Imereti, Guria and Racha-Lechkhumi. According to the operative division of the country intothe regions, Imereti and Guria have regional statuses. While, Racha-Lechkhumi shares the status with Kvemo (Lower) Svaneti.

The whole territory of the study is located in Western Georgia. Its total territory is 11.6 thousand square kilometers, comprising 16.6% of the whole territory of the country. The population reaches 647.5 thousand (2018), comprising 17.4% of the whole population of Georgia. According to the administrative-territorial division of Georgia, there is only one self- governing city – Kutaisi –on the territory and 17 municipalities (see table 1).

Historical- Area of the The number of The number of geographical territory (km2) municipalities population part (2018) Imereti 6356 12 507 Guria 2043 3 110.5 Racha-Lechkhumi 3217 3 30.2 Total 11616 18 647.5 Table 1. General features of the territory under research

6

Map 1. Location and composition of the regons under research

Imereti

Imereti,located in the centre of Georgia,is the only region not bordering any neighboring states. The centreof Imereti is the city of Kutaisi with population of 141, 000 (2018). Of all its municipalities 7 – , , , , , Tskaltubo and belong to the Kvemo (Lower) Imereti, while 4 of them – , , and – belong to Zemo (Upper) Imereti. The eastern border is Likhi Range which seperatesImereti from Kartliin a natural way and divides the country into Eastern and Western Georgia (Geography of Georgia, Part II, 2003, pp. 272). Imereti can be described as having a comparatively well-developed communication-transportation connectivity internally and with the rest of Georgia. The country’s major thoroughfare and the railway main line linking the East with the West go through Imereti.

From three sides Imereti is surrounded by mountains, while from the west is edged with KolkhetiLowand (Kolkheti’sDablobi). From agricultural perspective, the plains zone withhilss and hillocks and lower foothills is well- developed; it is spread across substantial territory and is located on 400

7 meters above the sea-level. This part of the territory is densely populated and has good agricultural conditions.

Agricultural activities are more difficult to carry out on the altitude of 400- 800 meters due to the relief’s fragmentation and low productivity of the soil; due to its steep slopes, the territory at 800 meters above the sea level is no good for agricultural pursuits and is thereforesparsely populated. The territory above 1000 meters is chiefly grass-lands. It is worth mentioning that the climate and soil of the part of Georgia are conducive to economy (especially to agricultural economy). The rivers in Imereti, among which the most important is the , are affluent and have a high power- generating potential; however,are almost useless for navigation. The rivers are used for irrigation purposes.

The territory of Imereti is rich in such important minerals as Manganese and coal; Chiatura represents the largest manganese reserve in Georgia, while Tkibuli-Shaori has the largest coal mine, however, the reserves have significantly diminished because of being under exploitation for too long. The territory is also rich in marble (Salieti, Shrosha, Moloti), bentonite (Gumbra), fireclay (Shrosha) and ceramic clay, quartz sand, limestone, barite, teshenite, chalcedony, plaster, etc. Of all the natural resources, thermal- radioactive water in Tskaltubo and a number of mineral waters (e.g. Sairme, Nunisi, Zvare) having excellent healing and recreational properties deserve a special mention. The part of Georgia abounds with timber resources, which along with shrubbery occupy almost half of its territory (300 thousand hectars) (ibid, p. 275), while the share of the cultivable lands is 1/3 of the whole territory.

Since the 1990s the population of Imereti has been steadily declining which, on the one hand, can be explained by low birth-rate and on the other, by high migration rate both abroad and inside the country (migration to Tbilisi). Nevertheless, the population density in Imereti (79.8 person per km2) and the urbanization level are higher than in majority of the parts/regions of Georgia. Throughout the history, Kutaisi has been the major city not only ofImereti but of the whole Western Georgia; it has been its industrial, administrative and educational-cultural centre. Despite the post-Soviet deindustrialization, Zestaponi (ferrous metalurgy), Chiatura (manganese mining) and Tkibuli (coal mining) have retained a clear industrial profile. Samtredia had important transportation function, while Tskaltubo was a spa-resort; the two have retained the functions with a varying degree of success. Other municipal centres have administrative and agricultural produce processing functions. In the agricultural sector vegetable and

8 cereals (corn), viticulture and cattle-breeding for dairy products and beef are essential.

During the past 25 years, in the light of diminishingproductive sectors of economy (production), the economic profile of Imereti has sharply transformed; instead of being agricultural-industrial, it became more tertiary spheres-oriented. At the same time, unsystematic but quite comprehensive projects, which should be analyzed from the perspective of the country’s and the region’s development and modernization, should be taken into account. Among them are the recently finished or ongoing projects, such as: renewal-refinement of the thoroughfare connecting eastern and western Georgia, building a new highway to Racha-Lechkhumi and Svaneti, building an international airport at Kutaisi, building the largest Technological/Technical University in the region of the South Caucasus, relocating the Parliament of Georgia from Tbilisi to Kutaisi (however, the project based on the necessity of decentralization turned out not to be sustainable or expedient from the economic perspective). Currently, facilitating such projects and promoting certain sectors of economy, especially tourism, is considered to be the basis of Imereti’s socio-economic growth.

Guria

On the latitude Guria is situated between Imereti and the and is the only unit of the research territory having access to the sea. Its territory is less than 3% of the whole territory of Georgia; consequently its population constitutes only a small proporionof the country’s total population. Once, a weak internal and external connectivity of Guria improved after construction of Baku- railway main line in the 19th century and Natanebi- railway branch later. Positive factor was construction of a throughfare (Batumi-Novorosiisk) along the Black Sea coastline. As a consequence of renewal of the construction of Baku-Supsa oil pipeline and completion of the Supsa Terminal, the location provided farther advantage to Guriain the period of Georgia’s independence.

Topographically Guria consists of two different parts. The area of plains (at the altitude of 400-500 meters) encompassing flat open areas and hillocks. The relief is less bent here and is therefore densely populated; it is better utilized from the economic perspective as well. However, the whole area is less populated and underutilized from the economic point of view.

9 Important natural resource is the subtropical climate of the territory and red and yellow soils along the sea coastline, whichcreates a foundation of the subtropical agriculture (tea-growing, citrus-growing and fruit-growing). The hydrographic network has quite a high potential. Of the minerals noteworthy is Supsa oil deposit, the capacity and volume of which is perhaps a few million tones. The territory is rich in bentonite clays (for oil production) and magnetic sands; the latter has healing properties. The region abounds with deposits of construction materials (e.g. asphalt, mineral dyes, clay for brick and tile production) and peat as well as hydromineral water resources (Nabeghlavi and Nasakirali waters) used for drinking and healing. The land resources because of the high fragmentation of the relief are pretty limited, the forest area reaching approximately 90 thousand hectars is quite large, especially in the mountainous part(Geography of Georgia, 2003, p. 319). Like other parts of Georgia, the population of Guria has been declining, which can be attributed to the low birth-rate (in some years even negative) and immigration, particularly by young, employable youthleading to the demographing ageing of the part of Georgia. The region ofGuria has a low urbanization index (less than 30%). Even Ozurgeti and are small towns (each with less than 20,000 inhabitants); to be more precise, Lanchkhutieven carries the status of a settlement. Accordingly, the economic profile of Guria is basically agrarian. Under the Soviet system the foundation of its economic development was an agro-farm complex the major fields of which were tea-growing, citrus-growing, fruit- growing and food processing factories.Understandably enough in the post- Soviet era, the spheres were severely hit. In many places tea bushes were replaced with hazel nut trees. Mining, production of construction materials and other fields of production diminished (or even discontinued). The opportunity created by putting Supsa Terminal into operation, which shall be directed towards oil-processing, has not yet shown any signs of making the economy healthier.

Racha-Lechkhumi

Racha-Lechkhumi is located to the north of Imereti.On the one hand, from the east it borders occupied/conflict zone ( Municipality) and on the other borders North Osetia and Kabardino-Balkaria autonomous units of the Russian Federation. Due to high mountans (only 25 is situated below 500 meters above the sea-level) and the relief fragmentation, the territory has always been distinguished with high isolation rate. The situation is further aggreviated by unprepossessing political situation on its borders.

10 Understably enough, the connectivity of this part of Georgia is low as well as chances of carrying out economic pursuits here. Natural-resource potential of Racha-Lechkhumi is also rather limited. Out of the fossils found here only Barytes, arsenic and antimony have exploitation potential. The territory also encompasses areas of Kvaisi lead-zink and Shaori coal mines. Out of other fossils only limestone, clay and plaster as well as construction stones and gravel should be mentioned. The Rioni and its tributaries (e.g. river Lajanuri) have unutilized hydro potential. There are many waters with healing properties (e.g. Utsera). Timber resources are of vital importance. Severe climate and soil conditions create serious impediments for agriculture development.

In contrast to the two other research territories, Racha-Lechkhumi has been suffering demographic difficulties for too long. During the period of Georgia’s independence, the territory has been facing the threat of depopuliation. The youth’s large-scale immigration to the plains and big cities is a typical trend here, which is the primary reason of diminishing and ageing its population. The population density index is rather low (9.4 persons per 1 km2); the urbanization level is less than 20%. Towns of Oni, and are small town-type settlements.

Correspondingly, the agrarian and economic profile of the region is rather limited. Opportunities of agriculture intensification is rather low, while developmental sectors have traditionally been dependent on the local resources and raw materials. Nowadays, the mining has almost dwindled; the leading sector of economy is vitucuture represented by only small and medium-sized enterprises. Famous semi-sweet wine brands – Khvanchkara, Usakhelouri, Tvishi, Barakoni –are in high demand; the region has fruit- growing sector as well but with rather limited harvest. They mostly grow here legumes (haricot beans), grains (corn) and potatoes. Stockbreeding, aviculture and apiculture have significantly reduced. Unfortunately once prospering, traditional handicrafts industry, such as production of iron and metalwear, clay items, wood-carving, have significantly reduced or disappeared. Like mining industry, extraction of the construction materials had decreased or is discontinued. The rich recreational-touristic potential of the part is seriousely under-utilized. The local traditional (e.g. Shovi) and potential resorts still remain beyond the Programmes supported by the central and local governments.

11 Economic Features of the Research Area

In Georgia a few large cities and the Black Sea coastline are marked with a high concentration of economic activities, while the other regions suffer from problems in the development and the level of life standard growth. On the one hand, the capital city with a high economic activity and on the other the regions where the economy and the life standard is stagnated. The graph describes GDP share according to the regions. As it becomes evident from the figure (see figure 1), almost half of the GDP is created in Tbilisi, which indicates to an excessive concentration of the economic activities in one city.

2.0% 1.8% 0.5% Tbilisi 3.0% 3.5% Imereti, Racha-Lechkhumi and Kvemo Svaneti 5.7% Kvemo 6.5% Samegrelo-Zemo Svaneti 8.2% 50.0% Samtskhe- 8.9% Guria 10.0% -Mtianeti Racha-Lechkhumi and Kvemo Svaneti

Figure 1. (Pie Chart)–Distribution of Gross Domestic Product according to the territorial units (2017)

As regards the target regions, Imereti accounts for 10% of the whole Gross Domestic Product of the country, while Guria and Racha-Lechkhumi 2% and 0.5%, respectively. Correspondingly, the situation seems more dramatic if we look at the distribution of the people employed in the business sector according to the regions (see pie-chart 2). 61,9% of the people employed in the business sector is concentrated in Tbilisi, which indicates to the lack of working places in the regions.

12 1.6% 1.5% 1.2% 2.6% 0.3% Tbilisi 3.3% 4.2% Adjara Imereti, Racha-Lechkhumi and Kvemo Svaneti 5.9% Samegrelo-Zemo Svaneti 7.4% Kakheti Shida Kartli 61.9% 9.9% Samtskhe-Javakheti Mtskheta-Mtianeti Guria Racha-Lechkhumi and Kvemo Svaneti

Figure 2 (Pie Chart)–The number of the employed according to the regions (2017)

Another interesting indicator is per capita Gross Domestic Product according to the regions. As described by figure 3, Tbilisi is the leader in this respect too, with approximately 14, 000 GEL. Out of our target regions, Imereti is the leader with 6,300 GEL, closely followed by Guria with 5,900 GEL and Racha-Lechkhumi and Kvemo Svaneti with 5,400 GEL. The indicator clearly shows that the life standard in Tbilisi is 2.5 times higher compared to the regions.

Registered Active Regions Number % Number % Total 737,542 100 184,707 100 Tbilisi 323,726 43.89 79,021 42.78 Abkhazeti 162 0.02 13 0.01 Adjara 64,962 8.81 18,680 10.11 Guria 17,740 2.41 4,798 2.6 Imereti 100,045 13.56 24,791 13.42 Kakheti 45,215 6.13 11,234 6.08 Mtskheta-Mtianeti 13,700 1.86 3,299 1.79 Racha-Lechkhumi and Kvemo 6,155 0.83 1,316 0.71 Svaneti Samegrelo-ZemoSvaneti 56,839 7.71 13,361 7.23 Samtskhe-Javakheti 22,074 2.99 5,552 3.01 Kvemo Kartli 54,605 7.4 13,777 7.46 ShidaKartli 32,319 4.38 8,865 4.8

13 Table 2- The number of entities registered and active in Georgia according to the regions.

A good illustration of the economic activity concentration is the distribution of the active business entities according to the regions (see table 2), majority of which are located in Tbilisi, followed by Imereti and Samegelo- Zemo Svaneti.

Tbilisi 14.15

Adjara 8.40

Samegrelo-Zemo Svaneti 6.45

Imereti, Racha-Lechkhumi and Kvemo Svaneti 6.31

Kvemo Kartli 6.15

Mtskheta-Mtianeti 6.13

Samtskhe-Javakheti 6.10

Guria 5.85

Kakheti 5.82

Racha-Lechkhumi and Kvemo Svaneti 5.36

Shida Kartli 4.36

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00

Figure 3–Per capita GDP 2017 (thousand GEL)

An interesting and telling indicator is the product created by people employed in the business sector. As indicated by the figure (see figure 4), production per employee is the highest in Mtskheta-Mtianeti followed by Kartli and Samtskhe-Javakheti. As regards, Imereti, Guria, Racha-Lechkhumi and Kvemo Svaneti, the product created by one employee is far behind the regions holding the leading position. Moreover, the indicator of Racha- Lechkhumi and Kvemo Svaneti is at the lowest throughout the country, which indicates to the low productivity of the employeed in the regions under discussion.

14 Tbilisi 55.83 Adjara 45.02 Samegrelo-Zemo Svaneti 57.70 Imereti, Racha-Lechkhumi and Kvemo Svaneti 43.56 Kvemo Kartli 70.52 Mtskheta-Mtianeti 71.26 Samtskhe-Javakheti 62.99 Guria 36.90 Kakheti 38.61 Racha-Lechkhumi and Kvemo Svaneti 23.74 Shida Kartli 44.48

0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00

Figure 4–Production of the buiness sector per one employee 2017 (Thousand GEL)

The productivity level in the private sector is closely linked with the salaries paid and in majority of the cases can be accounted for its level. At the end of 2017, the index under consideration stood at 1020 GEL in Georgia. Of all the regions highest index was in Tbilisi (see Figure 5) followed by Mtskheta- Mtianeti and Ajara. As expected the salaries were the lowest in Racha- Lechkhumi and Kvemo Svaneti; while the indexes of Guria and Imereti are far behind the country average. Racha-Lechkhumi and Kvemo Svaneti 510 Shida Kartli and Mtskheta-Mtianeti 564 Kakheti 594 Guria 596 Samtskhe-Javakheti 665 Imereti 698 Samegrelo-Zemo Svaneti 758 Kvemo Kartli 817 Adjara 849 Mtskheta-Mtianeti 950 Tbilisi 1,168

0.0 200.0 400.0 600.0 800.0 1,000.0 1,200.0 1,400.0

Figure1–Average monthly payments made to the hiredlabouraccording to the regions.

Low productivity canbe attributed to a number of reasons, one of which is the capital volume and the capital investments. Imbalance in this respect among the regions is even more obvious (see Figure 6). Namely, Tbilisi

15 accounts for three-fourths of the investments into the fixed assets, while the investments made in the regions are rather low.

1.3% 0.5% 0.4% 1.9% 1.8% 0.2% 2.5% 2.6% Tbilisi 4.5% Adjara Samegrelo-Zemo Svaneti Shida Kartli 9.3% Kvemo Kartli Imereti Kakheti 75.0% Mtskheta-Mtianeti Samtskhe-Javakheti Guria Racha-Lechkhumi and Kvemo Svaneti

Figure2–Investments in the fixed assets according to the regions (2017,mln GEL)

4,000 3,642 3,500 3,000 2,500 2,000 1,500 1,500 766 766 1,000 559 324 344 329 500 206 204 174 0

Figure3–Investments into the fixed assets (per capita)

The situation is much similar with regard to direct foreign investements too (see Table 3). In the case the existing trend continues, the regionswill find it difficult to catch up with Tbilisi and improve the life standards of their inhabitants, which will force the locals to immigrate to the capital city or leave the country.

16 2016 2017 2018 FDI % FDI % FDI % Tbilisi 1,335,897 85.30% 1,471,656 77.70% 966,766 78.40% Ajara 99,601 6.40% 193,797 10.20% 35,074 2.80% Kakheti 3,904 0.20% 6,180 0.30% -136 0.00% Samtskhe-Javakheti 30,807 2.00% 39,003 2.10% 32,282 2.60% Kvemo Kartli 28,991 1.90% 64,359 3.40% 85,087 6.90% Samegrelo-ZemoSvaneti 34,492 2.20% 49,425 2.60% 42,844 3.50% Guria 558 0.00% 1,134 0.10% 422 0.00% Imereti 27,991 1.80% 58,072 3.10% 47,128 3.80% Racha-Lechkhumi and 61 0.00% 2,417 0.10% 799 0.10% Kvemo Svaneti ShidaKartli 4,541 0.30% -690 0.00% 14,559 1.20% Mtskheta-Mtianeti -1,006 -0.10% 9,140 0.50% 7,624 0.60% Table 1–Distribution of the direct investements according to the regions.

The unemployment indexes dramatically differ according to the regions. On the one hand, the unemployment rate in Tbilisi stands at 19%, while in Guriait is less than 2%. The difference can be explained by the methodology of calculating the unemployment rate. Namely, in the regions where majority of people live in the countryside and own a piece of agricultural land are considered employed according to the formal statistics. If not this method of calculating the employment, the unemployment rate will turn out to be much higher in the regions.

30 Tbilisi 25 25 Kvemo Kartli Shida Kartli

20 19 Imereti 15 Samegrelo-Zemo Svaneti 14 14 14 14 15 13 Mtskheta-Mtianeti 1212 13 11 10 Adjara 9 9 10 8 Samtskhe-Javakheti 7 6 Kakheti 4 4 5 3 2 Guria Georgia 0 2017 2018

17 Figure4 (Bar Chart) –Unemployment rate according to the regions

Interesting is the income distribution according to the regions (see table 3). The table presents figures about the Jin’s coefficient according to the regions (calculated according to the household income). In our target regions, the mentioned index had been decreasing since 2011; however, in 2017 it showed a growing trend. 2011 2012 2013 2014 2015 2016 2017 Diff (2017-2011) Adjara 0.47 0.46 0.40 0.39 0.39 0.40 0.42 -0.05 Guria 0.46 0.38 0.38 0.40 0.39 0.36 0.39 -0.06 Imereti, Racha-Lechkhumi and Kvemo Svaneti 0.42 0.41 0.37 0.37 0.37 0.37 0.39 -0.03 Kakheti 0.45 0.44 0.48 0.47 0.54 0.50 0.44 0.00 Kvemo Kartli 0.44 0.42 0.41 0.40 0.41 0.41 0.42 -0.02 Mtskheta-Mtianeti 0.46 0.44 0.43 0.41 0.47 0.43 0.44 -0.02 Samegrelo-Zemo Svaneti 0.41 0.39 0.36 0.38 0.40 0.38 0.42 0.01 Samtskhe-Javakheti 0.45 0.42 0.39 0.39 0.42 0.39 0.38 -0.07 Shida Kartli 0.44 0.40 0.42 0.42 0.41 0.40 0.45 0.01 Tbilisi 0.49 0.45 0.41 0.42 0.41 0.42 0.40 -0.09 Table 2–Jin’s Coefficient according to the regions.

Normative and Strategic DocumentAnalysis

The aim of the research carried out within the project was analysingthe normative and strategic documents related to the development of the region of Guria. With this view three key documents were considered:  Regional DevelopmentProgramme of Georgia 2018-2021  Pilot Integrated Regional Development Programme 2020-2022  Development Strategy of Guria Region 2014-2021

Regional DevelopmentProgramme of Georgia 2018-2021

Regional DevelopmentProgramme of Georgia 2018-2021is a medium-term governmental working document drawn up on the basis of the socio- economic strategy of the government of Georgia (Georgia 2020). The Programme identifies the major goals of the country’s regional and territorial development, action priorities and appropriate measures to be taken to foster development in 2018-2021. The Programme is a next stage of the documents of the national planning, namely of the National Strategy of the Regional Development 2010-2017 and of the Regional Development Programme2015-2017. It should be highlighted that in accordance with the most recent practice, the Programme is based on the fundamental approaches of the territorial development. The strategic document emphasizes that on the one hand, Georgia is facing a number of challenges and is in need of further development and on the other, has a significant potential which can be effectively utilized for deepening economic development and improving its citizens’ quality of life.

18 The document outlines the following medium-term objectives of the regional development policy of Georgia, which meet the current requirements and take into account of the potentialrevealed:  facilitating fast economic development of the country by utilizing the potential of all the regions and considering their specific capacities  increase in social equality and employment opportunities for every citizen regardless of their place of residence.  promoting territorially balanced sustainable development. With this aim, the Programme uses a structure based on 5 priorities, which, in their turn, encompass five measures:

Priority 1: Imroving the basic infrastructure to foster the rise of the country’s and its regions’ competitiveness. The following activities are planned within this priority:  improving motorways of international and local significance;  developing other infrastructure for moto vehicles;  improving the power infrastructure and expanding the potential of the renewable energy resources;  improving the infrastructure to protect against the natural calamities;  development of water supply, channels and waste management infrastructure;  retention and promotion of the monuments of cultural heritage;  retention and promotion of the natural heritage;  development of the integrated municipal transport.

Priority 2: Promote the small and medium enterprises, growth-oriented economic sectors and export. The following activities are planned within this priority:  promote enterprises;  promote innovations;  promote tourism;  promote agriculture;  promote export;  promote ivestment.

Priority 3:Promote the human capital.The following activities are planned within this priority:  enhance the level of general (secondary) education;  enhance the vocational education;  enhance the quality of higher education and increase its accessibility;

19  support research sector;  increase labour-market accessibility;  promote integration of the vulnerable groups;  social inclusion.

Priority 4:Promote the local development and give aid to particular territories on the basis of their endogenic development. The following activities are planned within this priority:  promote regional development strategy;  develop the countryside;  develop the mountainous regions;  develop Anaklya deep-water portadjacent territory;  coastline and macro regional cooperation;  promote the functional integration of the urban territories.

Priority 5:Enhance the quality and efficiency of regional development; prepare regional pilot development programmes. The following activities are planned within this priority:  develop the capacities of the regional development institutions on the national level;  enhance the analyitical base for conducting evidence-based regional policy;  promote partnership and cooperation;  prepare developmental programmes for two pilot regions.

The document also contains the steps to be taken to carry out the above- mentioned measures and a calculation of the necessary budget. The supplementary document also covers the needs and potential of individual territorial units. The needs of individual regions have much in common, especially in terms of the basic needs, business support schemes and basic public services. However, there are many more factors, some of which are peculiar for each region individually or are common for only few of them. Below we present the unique features of Guria region identified in the document. Special barrier to overcome:  high migration level of the youth and ageing population;  high unemployment level, lack of qualified personnel;  low-quality of tourist infrastructure;  small area of the cropland, outdated agricultural equipment and technologies; underdeveloped system of logistics;  depreciated school infrastructure;

20  scarcity of the units of vocational education;  depreciated water supply system and low water quality;  underdeveloped spatial planning system and lack of the spatial planning documents;

Specific potential in need of development:  proximity to and Batumi ports and Batumi and Kutaisi airports;  Supsa oil terminal;  potential of mountain, sea and healthcare tourism;  potential of generating water, wind, biomass and solar energy;  wood resources.

Pilot Integrated Regional Development Programme 2020-2022

One of the measures prescribed by the Regional Development Programme of Georgia is to prepare pilot integrated regional development programmes. Hence, the mentioned document was prepared for Imereti, Guria, Racha- Lechkhumi, Kvemo Svaneti and Kakheti. The document has a clear role – to allow the government of Georgia to gain experience of putting the regional policy into practice by adhering to the European standards. This means involvement of the local administration, civil society, private sector and other interested parties in the decision-making and implementation processes. When setting the goals of the pilot programme, the above-discussed documents will be taken into account, namely: the Regional Development Programme of Georgia 2018-2021 and the Programme of Development of Guria Region 2014-2021; the document is based on specific objectives and outcomes envisaged by the EU/Georgia Association Agreement, which shall be attained when utilizing the EU funding for regional development in Georgia. As a result of the analysis of the socio-economic differences among the regions, the document identifies the regions’ needs and potentials, which are compatible with the EU established goal. Namely, overall aim of the pilot programme is: to increase investment in the developmental factors and promote employmentso as to foster the country’s more balanced and sustainable development. With a view to achieving the above-stated overall goal, the document identifies 5 priority dimensions and the goals of each of them: Urban-renewal – integrated measure in the dimension of urbanization.

21 The aim of the priority is to facilitate expansion of the town development process and promote factors of social and economic growth, structural changes and sustainable development. Unique touristic potential Overall goal is to develop unique touristic potential in the pilot regions; Entrepreneurship, competitiveness and innovativeness of the local small and medium-size businesses; The specific goal of this priority is to improve growth conditions of the small and medium-sized businesses and develop the innovative eco-system. Integrated local development; The goal of the above-mentioned is to retain the tradition, develop the infrastructure and enhance the quality of the local services with a view to promoting economic activities of the remote places. Effective local administration and partnership (TA) Increase the capacities of public administration and Development Partners in the modern regional policy and effective implementation of the pilot programme. In addition, the document describes each of the particular measures depending on the priorities planned for funding within the pilot project with participation of the state.

Develoment Strategy of Guria Region 2014-2021

The Development Strategy of GuriaRegion was elaborated by the Regional Developmental Council of Guria in cooperation with all the self-governing entities and with the involvement of representatives of the civil sector. The document was prepared within the framework of the Regional and Local Development Programme of the United Nations Development Programme (UNDP). The document describes the region’s economic situation, goals, objectives and the vision of the its development. The strategy shall facilitate to the implementation of the vision. The document describes the overall goal of the development of Guria region as follows: enhance the level of socio-economic development and welfare of its people – by strengthening the promising sectors and drawing investments, effective management and utilization of its natural resources, developing the local labourresources and creating new jobs, penetrating new markets and providing sustainable economic growth.

From economic perspective the document identifies the following strengths and capacities of the region:

22  the region’s proximity to Poti and Batumi ports, Poti free industrial zone and Batumi and Kutaisi airports;  significant capacity and inexpensive raw materials for processing industry;  cheap labor;  clean environment and environemtally-friendly produce.  sea and mountain resorts with high touristic potential and their proximity: magnetic sands in , and Grigoleti seaside resorts, Bakhmaro and Gomi mountainous resorts;  development potential of various types of tourism;  Supsa terminal’s presence in the region;  high manufacturing, energy and recreational potential of water resources; extensive resources of mineral, healing and thermal waters;  rich power resources (water and wind resources, biomass, solar power and thermal waters);  availability of various mineral resources.

In addition, the document identifies the strategic goals and objectives of the region, namely: Goal 1: possibility of development of public governance; Goal 2: efficient management and utilization of the natural resources and tangible assets; Goal 3: development of the basic infrastructure and construction; Goal 4: promotion of industry development; Goal 5: development of small and medium-sized businesses; Goal 6: diversified development of tourism; Goal 7: development of agriculture; Goal 8: creating a brand of the region; Goal 9: drawing foreign investments; Goal 10: organizing municipal and other public services; Goal 11: establishing an operable system of social welfare and healthcare.

Methodology

The research project consists of a few most important stages and includes spatial and economic elements; different methodological approaches are used depending on the levels of research: Before singling out the functional regions and gravity centres, it is essential to consider the research territory from the perspective of political-

23 administrative and statistical regions, which would be impossible without collecting existing data and carrying out fundamental desk-research. In light of this, the data available in the target geographic regions and administrative units were collected, processed and analyzed; the data published by competent institutions and organizations working on the issues under consideration have also been utilized. Multisectoral quantitative analysis. With a view torevealing competitive areas, after collecting and evaluating appropriate statistical data, the present research on the first stage utilized a methodological umbrella of Multi-Sectoral Qualitative Analysis (MSQA) developed by Roberts and Stimson (1989). Its application is justified by a few factors with a view to uncovering the leading directions of economic sectors and the field with high development potential. First – MSDA framework combines elements of quantitative and qualitative research conducted and is convenient when the quanitative data are scarce. Second, as a quantitative method Delf’s Expert survey method approved in Georgia in elaboration of the regional policy instruments was applied. Third, MSQA is the only well-known method which revelas competitive fields by applying the risk evaluation criteria and category rankings, which allows us to advocate recommendations of the regional policy according to the established priorities.

Accordingly, the methodology applied in the research project is one complex methodology with three major components, relying on different approaches supplementing one another. The cause of the complexity is the reality of Georgia with scarce data or non-existent factual information, which makes it difficult for the groups working on the regional policy to create a picture close to the reality.

Delf questionnaire to reveal functional regions and the centres of gravity. Within the project, the employees of the municipalities and self-governing towns of the regions were surveyed by applying Delf method. The survey included not onlyalternative possible versions of the functional regions which could be singled out in the research area but alsoinvolved identifying priority of the criteria on the basis of which ranking of the gravity centreswas established. The research authors decided it would be more reasonable to survey the municipality employees to determine decisiveness of the factors for singling out functional regions or revealing the gravity centres rather than ascribingcertain subjective points, at their discretion,to each of them.

24 With a view to delimitizingthe functional regions, three versions of delimitization were developed, which coincided with the borders of the parts and administrative entities (municipalities) of the region and represented their different combinations. After reading and comprehending appropriate explanations, the research participants could, on the basis of their professional/job expertise and knowledge of the region’s export economy, identify the following functional regions: a) only Imereti, or b) Imereti and Racha-Lechkhumi or c) Imereti, Racha-Lechkhumi and Guriaalong with their municipalities.

In the case, a respondent did not find any of the offered versions acceptable, he/she was given an opportunity to substantiate an alternative factor or a combination of factors on which the delimitation of the functional region was to be based. Such an alternative factor was developed by the research authors and identified in the questionnaire itself; e,g. proximity to Kutaisi, accessibility of the transportation infrastructure, the population density and the number of the registered enterprises. Certain parts of the questionnaire were specially elaborated for revealing the gravity centres and establishing ranking of the potentially competitive fields. The respondents evaluated significance of the factors in the formation of the gravity centres according to the Likert scale; the relevant significance (weight) of the factors determining the gravity centres was established by normalizing and standardizing the survey findings. The questionnaire was used to establish the criteria by which the secondary and tertiary centres of the research region were identified, which allowed the research to concentrate on more detailed consideration of the economic activities in the primary centres. In order to reveal the population mobility trends, one more quantitative research was conducted, which included keeping treck of the schedules and the routes of the public transports (chiefly mini-vans (the so-called “Marshutkas”) running among the municipality centres, which allowed to determine the intensity of transport and probable/possible labourrelations. Representatives of each municipality within the three regions having certain experience in spatial arrangement and regional economy were surveyed. With a view to identifying the principal sectors of economy in the research region and thoroughly studying them, widely-applied and approved methodologies have been used: Shift-Share Analysis and Location Quotient, LQ. Both of them rely on the figures of the employee numbers in the sector and the added value created in the field. The first examines changes in the data dynamics, while the other measures the level of sector concentration in the region.

25 Shift – Share Analysis allows measuring competitiveness level of different sectors in the region. It singles out three major factors determining the changes in the number of the people employed in any given sector of the region or in the added value created here; they are: National Growth Effect (NGE) describing the effect of the country’s economic growth on the number of employees or on the created added value in the given sector of the region; Industrial Effect (IME) – evaluates to what extent the growth of each sector on the national level affects the number of employees in the same sector on the regional level or on the added value created there; Competitiveness Effect (CE) demonstrating how many new jobs or added value was created in the region due to the competitiveness of the given field. The equation below combines all three effects: 푡+푛 푡+푛 푡+푛 푡+푛 푡+푛 푡+푛 푡 푡 퐸 푡 퐸푖 퐸 푡 푒푖 퐸푖 푒푖 - 푒푖 =푒푖 [ 푡 - 1] + 푒푖 [ 푡 - 푡 ] + 푒푖 [ 푡 - 푡 ] 퐸 퐸푖 퐸 푒푖 퐸푖 퐸푡+푛 푒푡[ - 1] - NGE 푖 퐸푡 푡+푛 푡+푛 푡 퐸푖 퐸 푒푖 [ 푡 - 푡 ] - IME 퐸푖 퐸 푡+푛 푡+푛 푡 푒푖 퐸푖 푒푖 [ 푡 - 푡 ] – CE 푒푖 퐸푖 where, 푡+푛 푒푖 - the number of people employed in the region in i sector in t+n year 푡 푒푖 - the number of people employed in the region in i sector in tyear 푡+푛 퐸푖 - number of people employed in the country in i sector in t+n year 푡 퐸푖 - the number of people employed in the country in i sector in t year 퐸푡+푛 - the number of people employed in the country in all the sectors in t+n year 퐸푡 - the number of people employed in the country in all the sectors in t year

Location Quotient, LQ was applied to determine the concentration of different economic sectors in the region and evaluate how significant a direction of a particular sector is for the given region. Like in Shift-Share analysis, the Location Quotient is calculated according to the added value created and the number of people employed in each individual sector. Taking the latter into account, Location Quotient is calculated in the following way: 푒 퐸 LQ = 푖 / 푖 푒 퐸 where,

푒푖– the number of employees in i sector in the region 푒 - the total number of the employed people in the region

퐸푖 - the number of employees in i sector in the country E - the total number of employed people in the country

26 Location Quotient is evaluated for different sectors of the region.All the sectors where LQ > 1, could be considered as the chief direction of the region; when LQ <1, the sector is considered secondary (ancillary).

Delimitation of the Functional Region and Identifying Centres of Gravity Outcomes of Singling out Possible Functional Regions

The chief objective of the spatial analysis of the research project was establishing and delineating the borders of the functional region on the basis of the questionnaire described in the methodology. With this aim, administrative maps, maps of gravity centresand individual economic functions were prepared for the project. The main difficulty encountered while delineation,was the fact that the research region is a combination of the territories which historically and geographically have been individual provinces and even according to the current administrative division are three separate units (parts). Accordingly, while establishing the regions’ borders, priority was given not only to the thematic division of the economically competitive activities but also to the current geographical composite factors.

The traditional explanation of the functional region is associated with the focus point or the concept of the so-called “hub”. The region is united around a nucleus, where various societal, political and economic functions are distributed and shared by the population inhabiting the region with the above-mentioned Centre. For the territory under our research, such a centreis definitely the self-governing city of Kutaisi, one of the largest cities of the country.

27

Map1 - Versions of configuring probable functional region on the research territory.

The survey findings described in the methodological part clearly indicate that by taking into account the definition of the functional region and the relevant evaluation criteria, the municipality representatives supported probable existence of the functional region on the territory with the following percentage distribution:

Figure5– (Pie Chart)Distribution of the answers to the question on the

28 delimitation of the functional region

The functional region is established depending on the borders of the administrative units. (IM – Imereti + RL (Racha-Lechkhumi) + GU (Guria).

As indicated by the vast majority of the people polled (80%), by taking into account the situation in their as well as in the neighboring municipalities, they definitely give preference to considering these parts as separate [functional] regions; this is further reinforced by the fact that a large portion of the research territory (namely the biggest portion of the territory of Guria) is most likely to be a part of another functional region, namely of the so-called Black-Sea Coastline Region; the approach is based on convincing arguments. For greater accuracy, we should notice that based on 2018 Black Sea coastline research findings, two municipalities of Guria are considered a part of the Black Sea functional region, while mountainous Racha-Lechkhumi and municipality (Guria) can be deemed a part of the (high) mountain functional region. The fact significantly reduces the chance of establishing and perceiving the research territory as a whole functional region.

Analysis of the Functional Region Formation Factors

Formation of the functional regions is significantly affected by four main factors – proximity to the main thoroughfare, proximity to the major city(ies), the population density and businessconcentration, administrative belonging, all of which will be discussed in greater details below:

29 Non-existent Less important Important Quite important Very important

20-km buffer zone of the infrastructure accessibility (roads of international and inter- town significance) One of the major cities of Georgia and a 50-km buffer zone of its accessibility

Population density and the number of registered enterprises

Administrative borders

Figure6–Factors for identifying the functional region

According to the first factor – a 20-km buffer zone from the thoroughfare – there is a Lanchkhuti-Samtredia-Kutaisi-Terjola-Zestaponi corridor, located directly on the international thoroughfare. Tskaltubo could also be inlisted among the centres. However, such administrative centres as Ozurgeti and Chokhatauri, Baghdati, Vani, Sachkhere, Kharagauli and Chiatura are left beyond the zone, let alone Racha-Lechkhumi municipal centres. However, in the latter case, the situation can change dramatically if we take into account the planned construction of Kutaisi-Svaneti inter-city highway, which will lead to traffic increase between Kutaisi/Imereti and Svaneti via Lechkhumi and will probably reduce the traffic overload on - highway. Another fact worth mentioning is the construction of a thoroughfare between and Kharagauli municipalities, which is deemed an alternative route to Rikoti Ridge – connecting eastern and western Georgia.

30

Map 3 –a fragment from the transport thoroughfare proximity map, with 20 km gradation.

The second factor,which according to the majority of the respondents, carries significant or extreme importance for delianation of the functional region is the distance from Kutaisi. Conventionally a 50-km buffer zone was agreed upon.

Map 4 - Map of the research territory with a 50-km buffer from Kutaisi.

31 Delianation of the functional zone at 50 km distance (buffer) from Kutaisi, produces absolutely different pricture, because if this is the case, territories of other municipalities, e.g. and municipalities, intersect with one another, which cannot be considered a functional region of Great Imereti due to a number of administrative, economic and socio- cultural reasons. On the other hand, a 50-kilometer buffer zone, makes the issue of of Guriaeven more challenging, because the latter does not belong to the Black Sea functional region or to its adjacent high-mountainous Ajara municipalities. Likewise, ambigious is the fate of those municipalities of Imereti or Racha which in the case of such delineation are left beyond the zone. In such a case it is recommended to take into account the research findings on the mountainous regions, however, it should be highlighted that according to this research, Oni is associated with Kutaisi functional region.1

Centresand Sub-Centresof Gravity

For primary indication of the gravity centres and sub-centres, current and historical data of the population number and density have been used.

40000

35000

30000

25000

20000

15000

10000

5000

0

1989 2002 2018

Figure7–The number of population in the municipalities of the research regions (except Kutaisi)

32 Despite, unprepossessing demographic picture caused by the declining population, the towns still maintain more or less consistent proportional balance with historical figuresevidenced by the above-given figure.

1989 2002 2018

250000 232500 186000 200000 141,000 150000 100000 50000 0

Figure8–Changes in the population of the city of Kutaisi 1989-2018 წწ.

It should be noted that not only the population figures changed but also the number of the second-rate urban centres, which is quite obvious if we analyze the urbanization map of a few recent decades1, where Kutaisi and its agglomeration, or connected second-class towns, are quite clear; of which Tkibuli, Khoni, Tskaltubo and Chiatura suffered a major demographic and economic recession.

Map2–Tbilisi and Kutaisi agglomerations

Taking into account the current situation, the most convenient method for establishing the centers of gravity is a transport communication matrix.

1Jaoshvili, 1978. УрбанизацияГрузии

33

Map 3–The findings of communication matrix of the research regions for the town of the first and the second categories

The data were collected by surveying the employees of each of the municipality bus stations in the research area, who gave information on the private mini-buses running in the town centres as well as to the nearby settlements; mini-buses, are the most frequently used means of transport after automobiles. Despite certain limitations, this method of surveying gave a logical picture on the connectivity of Imereti, Racha-Lechkhumi and Guria municipal centres. The data almost fully coincide with the classifications drawn up according to the population number and density. The communication matrix reveals not only the secondary and tertiary gravity centres but also gives an idea of the transport connectivity between them, which will visually be depicted on the figure of directions, where the towns are represented as the centres of the graph; the thickness of the lines depends on the transport links between them. The figure has been

34 drawn considering the results given below (see an appendix – Communication Matrix).

As a result of the above-described processes, the following ranking was established for the municipalities of Guria, Imereti and Racha-Lechkhumi administrative units.

Centres/towns Category

Kutaisi of the 1st level Samtredia of the 2nd level Zestaponi of the 2nd level

Ozurgeti of the 3rd level Tskaltubo of the 3rd level Chiatura of the 3rd level

Khoni minor Ambrolauri minor Lanckhuti minor minor Oni minor Chokhatauri minor Sachkhere minor Terjola minor Tkibuli minor Tsageri minor Khatagauli minor Vani minor Baghdati minor

Table3–Classification of the Gravity Centres

35 Conclusion

Thus, the findings of the present research make it clear that it is not expedient to consider Imereti, Guria and Racha-Lechkhumi as one single [functional] region (conventionally, as Great Imereti) already formed or being in the formation phase, as existence of such a region is not verified by the quantitative indicators or by any clear arguments. Currently, the three units do not have significant systematic or firm/intense economic, population mobility, transportation and other types of contacts/relations (or are very fragile if any). The area is not sufficiently integrated, which is why we believe it is more reasonable to describe each of the units as a separate region in its own right within the adopted administrative (regional and municipal) borders. Simultaneously, the interrelationship among the three parts of Georgia under investigation and the municipalities within them is not homogenous, namely: Guria, especially Ozurgeti and Lanchkhuti municipalities manifest far stronger connection and integration with the Black Sea functional region and its main gravity centre - Batumi than with Imereti region with its principal city of Kutaisi. This is described in the research Black Sea Functional Region, its Gravity Centres and Competetive Advantages (2019).2 An exception is Chokhatauri municipality a major part of which, according to the above-mentioned research, does not belong to the Black Sea region. In addition, Chokhatauri does not have any special contacts or integration with Imereti region now and is very unlikely to have any in future. According to its terrain and territorial peculiarities, this municipality can be considered within the limits of mountainous Georgia. Thus, its assignment to any particular functional region is rather conditional. Because of the current territorial arrangement of Georgia, we believe it expedient to assign Chokhatauri to the functional region, which already includes two other municipalities of Guria (in our case it is the Black Sea region). In contrast to Guria, Racha-Lechkhumi is definitely not a part of a clearly formed functional region; however, its geographic peculiarities clearly indicate it belongs to the mountainous region. Due to the fact that the mountainous region does not have a compact and consistent configuration, the connection of Racha-Lechkhumi to Imereti is still worth considering as

2When discussing the findingsofthementionedprojectinthetownsofOzurgetiandLanchkhuti (May 6, 7 2019), representativesofthelocalcommunitiesstraightforwardlystatedthatthementionedmunicipalitiesdonotmaintai nclosecontactswithImeretiregion; they said theybelievedtheirterritoriesarewithintheBlack Seacoastlineregion. It is true, it cannot serve as a strong scientific argument, but is definitely an indirect indicator.

36 Kutaisi is its closest city and correspondingly the major centreof gravity. In future, along with improvement of the transport infrastructure and deepening economic activities, the connection and integration of this part with Imereti can significantly increase. It should be highlighted that the research - CompetetiveAdvantages of Mountainous Regions (2019) - associates with the functional region. Nevertheless, on the given stage we do not consider Racha-Lechkhumi or any of its individual municipalities integrated into one functional region with Imereti.

Competetive Advantages

Analysis of Competetive Sectors in Guria

As described by the figure given below, the population of Guria has significantly declined (from 167,7 thousand people in 1994, to 109,4 thousand in 2019). The data suggest that majority of the people live in (60, 6 thousand) with 15,000 people living in Ozurgeti itself.

180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0

Lanchkhuti municipality Ozurgeti municipality Chokhatauri Municipality

Figure9–population (thousand people) In 2011-2017, in Guria Gross Domestic Product increased by 31.1%. The fastest growing sectors include: construction (333,2%), industry (140,5%), transport and communications (138,6%), service (81%). The declining trend is observedin healthcare and social aid (-13%), agriculture (-12,2%) and household produce (-9.3%). The largest added value is created in service sector in Guria (see figure8), followed by agriculture and governance.

37 4.5% 2.1% Other types of services 4.8% Agriculture, hunting and forestry; fishing 4.9% Public administration 24.7% Industry 6.6% Education

9.0% Health and social work 17.8% Construction 10.1% Processing of products by households

Trade; repare of motor vehicles and personal and household 15.5% goods Transport and Communication

Figure14–(Pie Chart) GDP across sectors (in the current prices, mln. GEL, %, 2017)

The number of the employed in the business sector in Guria is increasing (see the graph). The largest sectors in the business sector are: trade (24.1%), processing industry (17.6%), hotels and restaurants (15.4%) and construction (13%). The wages of the hired labouramount to approximately 600 GEL. The highest wages are in the construction sector with 1001, 6 GEL; the lowest in education – with 153 GEL.

6,000 5,705 5,133 5,000

4,000 3,691 3,071 3,000

1,868 2,000 1,600 1,211 1,178 1,214 854 956 1,000 678

0 2014 2015 2016 2017

Ozurgeti municipality Chokhatauri Municipality

Figure 15 (Bar chart) –the number of the employed in the private sector.

According to 2018 data, the unemployment stood at 1.8%. The index raises questions about its trustworthiness; however, if the total number of the employed carefully considered, we will get convinced their majority are self- employed (see the graph); these are people owning small pieces of land and

38 perhaps cultivating them. If we exclude these people from the employed ones, the unemployement rate in the region will reach approximately 70%.

80 60 40 52 47 20 19 21 0 2017 2018

Hired Self employed

Figure 16 - distribution of the employed

In almost every sector in Guria, the salaries/wages have been rising, however, the salaries in the region are one of the lowest in the country. According to 2017 data, the average salary is approximately 600 GEL. As regards the salaries, Chokhatauri municipality is the leader. According to the sectors, the highest salaries are earned in the activities associated with the real estate (1227 GEL). The biggest increase in the salaries, by 880%, has been seen in administrative and support services, however, the share of the mentioned sector in the overall employment is small indeed. In addition, significant is the salary increase in services associated with real estate (315%), however, the number of the employed in this sector has started to decline.

1200

1000

800

600

400

200

0 2014 2015 2016 2017

Guria Chokhatauri Municipality Ozurgeti municipality Lanchkhuti municipality

Figure (bar chart) 10– Average monthly payment of the hired labour.

39 According to the data of the Business Register of the National Statistics Office of Georgia (see table 4) total 8769 commercial entities are registered in Guria, the majority of which are registered as sole traders, followed by Limited Liability Companies. Only 31, 7% of all the registered entities have the active status.

Number of Number of the Active entities in a Active registered entity, particular entity entities % sector Partnership 16 1 6 37.5% Local private property 14 1 5 35.7% other 2 1 50.0%

Sole trader 7475 3539 2138 28.6% Local private property 7475 3539 2138 28.6% ownership Cooperative 33 31 7 21.2% Local private property 33 31 7 21.2% Joing Stock Company 20 20 12 60.0% Local private property 18 18 11 61.1% National property Mixed type of private 1 1 1 100.0% propety Joint Security 1 1 0.0% Company 13 12 6 46.2% Local private property 13 12 6 46.2% Limited Liability 1212 1092 608 50.2% Company Local private property 1089 985 538 49.4% Private foreign 51 38 32 62.7% property Municipal propety 26 26 8 30.8% National property 10 10 4 40.0% Mixed type of private 36 33 26 72.2% propety TOTAL 8769 4695 2777 31.7%

40 Table4–The number of registered and active entities

Identifying Competetive Sectors in Guria Relying on the Location Quotient calculated according to the number of the employed, the following sectors have been identified as the leading ones in Guria:  Fishing, fishery;  Hotels and restaurants;  Mining industry;  Agriculture. Hunting and forestry;  Processing industry;  Construction. Rendering communal, social and personal service (LQ=1)

LQ LQ Added Sector Emplyment Value

Agriculture, hunting and forestry 1,6 1,9 Fishery, fishing 6,2 5,8 Mining industry 2,2 1,3 Processing industry 1,3 2,5

Power, gas and water production and distribution 0,3 0,2 Construction 1,2 1,3 Trade; repairing automobiles, household appliences and personal items 0,9 0,7 Hotels and restaurants 2,6 1,3 Transport and communication 0,8 0,5 Operations with real estates, rent and rendering service to customers 0,6 0,6 Education 0,1 0,1

Healthcare and social aid 0,4 0,5 Rendering utility, social and personal services 1,0 0,7

Table5–Location Quotient inGuria

As for the added value, after calculating LQ, we found out that the principal sectors of the region are as follows:  Fishery, fishing  Processing industry

41  Agriculture. Hunting and forestry  Mining industry  Construction  Hotels and restaurants

Guria – Shift –Share (Economic Changes Analysis) Analysis of the economic changes carried out by considering the total number of the employed, indicated the following as competitive fields in Guria:

 Hotels and resaturants  Trade; repair of automobiles, household appliences and personal items;  Construction  Trabsport and communication  Processing industry  Rendering communal, social and personal service  Agriculture, hunting and forestry  Operations in real estate, rent and rendering customer service;  Power generation, gas and water production and distribution  Fishery and fishing  Education

Quantitative changes in employment Sector NGE IME CE (2017 compared to 2010)

92,1 -7,6 49,5 134,0 Agriculture, hunting and forestry Fishing, fishery 17,2 -11,1 15,9 22,0 133, -16,8 -50,6 66,0 Mining industry 4 - 817, 133, 449, 502,0 6 6 Processing industry 2 Power generation, gas and water 37,4 -34,5 24,1 27,0 production and distribution Construction 246, 26,1 552, 825,0

42 5 4 447, 534, 563, Trade; repair of automobiles, household 1.545,0 appliances and personal items 8 1 1 124, 133, 932, 1.190,0 Hotels and restaurants 0 1 9 167, 404, -86,3 485,0 Transport and communication 0 4 156, Operations in the real estate, rent and 99,5 40,6 297,0 rendering service to customers 8 Education 1,6 -0,5 15,0 16,0 - - 649, 459, 665, -476,0 1 Healthcare and social aid 6 5 139, 60,4 69,0 269,0 Utility, social and personal service 7

Table 8–Shift ShaerAnalysis

As it turned out, due to the increasing competitiveness, the hotel and restaurant sector is the leader according to the number of the employed.

In addition, analysis of the economic changes depending on the data of the added value, makes it evident that the competitive sectors of the region are as follows:  Construction  Trade; repair of automobiles, household appliances and personal items  Processing industry  Transport and communications  Operations in the real estate, rent and rendering service to customers  Hotels and restaurant  Agriculture. Hunting and forestry  Communal (utility), social and personal service  Power generation, gas and water production and distribution  Fishery, fishing

Changes in Sector NGE IME CE added value (in 2017

43 compared to 2010) (mln GEL)

0,4 0,2 1,3 1,8 Agriculture, hunting and forestry Fishing, fishery 0,4 0,3 0,3 0,9 Mining industry 2,9 -1,1 0,0 1,9 - 36, 10, 11, 35,8 8 4 Processing industry 3 Power generation, gas and water production 0,9 -0,6 1,1 1,4 and distribution 25, 2,8 3,1 31,7 Construction 9 17, Trade; repair of automobiles, household 4,8 0,3 22,7 appliances and personal items 6 Hotels and restaurants 1,1 1,1 4,7 6,9 Transport and communication 1,1 -0,6 9,9 10,4

Operations in the real estate, rent and 1,1 0,8 9,0 10,9 rendering service to customers Education

4,4 0,4 -2,9 1,9 Healthcare and social aid

1,7 1,3 1,2 4,2 Utility, social and personal service

Table 6–Changes in the added value

In 2010 – 2017 the added value created in the construction sector constituted 31, 7 million GEL, the major portion of which (25.9 mln GEL) derived from the rise in the sector’s competitiveness. The figure suggests the construction sector takes the leading position in the region.

Calculating the total points By combining the results of the above analysis, it becomes evident that the major sectors of Guria region are as follows:

 Construction  Trade

44  Hotels and restaurants  Transport and communications  Processing industry  Operations in real estate, rent and rendering customer service  Power generation, gas and water production and distribution  Fishery and fishing;  Education

Score Score (according to Sector (added value Total the number score ) of employed) 5 5 10 Agriculture, hunting and forestry Fishing, fishery 2 2 4 Mining industry -1 1 0 Processing industry 7 9 16 Power generation, gas and water 3 3 6 production and distribution Construction 9 11 20

Trade; repair of automobiles, household 10 10 20 appliances and personal items Hotels and restaurants 11 6 17 Transport and communication 8 8 16

Operations in the real estate, rent and 4 7 11 rendering service to customers Education 1 0 1 -2 -1 -3 Healthcare and social aid 6 4 10 Utility, social and personal service Table 10 - calculating the Total points

Hotel and Restaurant Sector

Hotel and restaurant business sector is one of the fastest-growing sectors in the region. Namely, in 2017 production level was approximately three times higher than in 2012. However, in 2016-2017, the growth in the sector slowed down and in 2017 the added value produced in the sector decreased by 4.4%.

45

16 250%

14 200% 12 150% 10 100% 8 50% 6 0% 4 2 -50% 0 -100% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Turnover Output Added value Real Growth (Turnover) Real Growth (Output) Real Growth (Added value)

Graph 11 (Bar-Chart) - General index of the hotel and restaurant sector growth

Despite the sector growth, the investements made in it still remain rather low. As it is evidenced by the bar chart the investments were the highest in 2015, however, they did not exceed 2,2, million GEL. In the same period, the percentage of the trade sector’s share stood at the lowest – 23,2%.

2.5 25.0% 2.2 23.2% 2.0 20.0% 1.6 1.5 15.0% 12.8% 1.0 10.0% 0.7 0.6 0.5 7.7% 0.4 0.4 0.5 4.3% 5.0% 0.1 0.1 0.1 3.2% 3.3% 0.0 2.2% 2.3% 0.0 1.7% 0.0 0.0% 0.0% 0.6% 0.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Investments (mln GEL) Share in Tital investments

Figure12– (Bar-Chart) Investements in the fixed assets

As regards the number of employed, in 2017, the number of the employed in the hotel and restaurant business sector stood at 1349accounting for 15% of all the employed in the business sector in Guria. It should be noted that the number of people employed in the sector and their share have been

46 increasing in recent years. In 2017 the number of the employed in the sector increased fourfold compared to 2012.

10,000 8,786 9,000 7,689 8,000 7,000 5,466 5,724 6,000 5,024 5,205 4,647 4,661 4,959 5,000 4,243 3,936 3,884 4,000 3,000 15% 2,000 12% 9% 1,000 5% 2% 2% 5% 4% 8% 7% 10% 9% 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

employed people in Guria Employed in the sector

Figure13–the number of employed in the hotel and restaurant sector

The dynamics of the visitors’ numbers is also positive in the hotel and hotel- type establishments. Namely, if the index in 2014 was 23,800 persons, in 2017 it exceeded 50,000. As evidencesd by the table, the chief aim of the visits was recreation and rest. Majority of the visits were from Georgia.

Including Number of Business Other guests Recreatio and Treatment reason persons n and rest professiona s l Guria 50,213 44,686 3,484 1,133 910 Including

From Georgia 36,660 32,395 2,814 565 886 From abroad 13,553 12,291 670 568 24 including

From the EU 609 321 263 1 24 countries From CIS 11,851 11,086 198 567 - From other 1,093 884 209 - - countries

47 Table 7– the number of guests at the hotels and hotel-type establishments* according to the place of arrival and the purpose of the visit (2017)

According to the data of the Business Registar, 276 companies are registered in the hotel and restaurant sector in the region, 214 of which have the status of sole traders. Of all the registered enterprises 54% are active.

The number of The number the registered of active entities entities Sole trader 214 109 Local private property 214 109 Joint stock company 1 1 Local private property 1 1 Limited liability company 61 40 Local private property 55 35 Foreign private property 3 3 Private property of mixed type 3 2 Total 276 150

Table8–the number of the registered and active enterprises in the trade sector

As for the demography of the enterprises, Tables 15 and 16 clearly indicate that the death rate of the enterprises is rather high. For instance, in 2016- 2017, the enterprise death-rate exceeded the number of new enterprises born. However, it should be highlighted that in 2017 80,4% of all the enterprises registered in 2015 survived.

2012 2013 2014 2015 2016 2017 birth 20 37 23 46 22 12 death 16 15 26 27 Table9– Birth and death of the enterprises in the construction sector

2016 2017 The number of survivors 42 37 Share of survivors 91.3% 80.4%

Table10–index of survival rate of the enterprises registered in 2015 წელს

48 Natural-geographical conditions, mountainous resorts and the Black Sea coastline resorts, numerous cultural-historical monuments, mineral waters and other natural resources create good conditions for developing restaurant and hotel business in the region. The length of the region’s Black Sea coastline is 22 km. The Black Sea coastline abounds with some famous resorts – Ureki, Shekvetili and Grigoleti; in the mountainous, Alpine zone resorts as – Bakhmaro (2050 m) and Gomismta (2130). There are two spa resorts on the territory as well – Nabeghlavi and Nasakirali. In recent years the number of hotels on the Black Sea coastline has significantly increased. A major tourist attraction is . According to 2015 data, the Park was visited by 13,7 thousand visitors. For comparison, in the same period – Prometheus Cave had 106 thousand visitors, while - Kharagauli National Park was visited by 51 thousand visitors. According to 2018 data, the visits to the National park have increased to 34 thousand, however it remains significantly far behind other preserved territories mentioned above (Prometheus Cave, 185,5 thousand, Borjom-Kharagauli – 62 thousand visitors). Accordingly, this part has a growth potential but is in need of the infrastructure development.

Currently, adequate utilization and development of the tourism potential is hindered by a mixture of such factors as: low investment level (local and foreign), weak basic infrastructure, disorder of eateries and high level of season-dependency. According to the 2019 data of the National Tourism Administration of Georgia, there are 109 placement options in the region of Guria, which constitutes 4,4% of the total places around the country. The mentioned establishments have 1771 rooms with 4652 beds. 29% of all the places have 5 or fewer rooms; from 6 to 10 rooms are available only in their 15%; the rest have 10 or more rooms.

The The number Region number of Beds of places rooms Georgia 2,430 35,935 88,015 Ajara 475 10,578 25,978 Guria 109 1,771 4,652 Tbilisi 469 9,631 21,628 Imereti 179 2,485 5,899 Kakheti 219 1,737 4,170 Mtskheta-Mtianeti 166 2,022 5,261

49 Racha-Lechkhumi, Kvemo Svaneti 73 516 1,496 Samegrelo-ZemoSvaneti 484 2,940 7,406 Samtskhe-Javakheti 214 3,836 10,440 Kvemo Kartli 17 239 562 ShidaKartli 25 180 523

Table11–the number of placement options and their distribution across the regions

In 2018, a high-class hotel - Paragraph (Paragraph Resort & Spa Shekvetili, Autograph Collection) was opened in the region on the territory of Shekvetili, with 220 rooms and 440 beds. In addition to the hotel, opening the Black Sea Arena is also a fact worth mentioning as it further encourages growth of the tourists inflow into the region. Of all the hotels located here opening the OkrosSatsmisi (Golden Fleece) and the Kolkhi in Ureki in 2016 deserve a special mention. According to the National Tourism Administration of Georgia, in 2018, 16 placement places were opened in Guriacontributing 490 rooms and 1031 beds to the region; in addition, it is planned to open 25 more places with 650 rooms and 1,243 beds. Considering visits of the international visitors to the region, it is clear that in 2018 Guria was visited by only 1.3% of all the international visitors arriving in Georgia. Similar is the situation with internal tourism, where the index stands at 2,6%. Thus, the region’s potential is not fully utilized.

Table 12–entrepreuner’s survey results (excluding the sole traders)

Investments Flow Number of Employed in the fixed Number of Salary (thousand the Hired labour number, assets and enterprises average GEL) employees average the working capital 0-999 3 12 12 4 84 100-199 1 8 8 8 375 200-299 2 18 18 9 350 400-499 1 36 36 36 232 97,700 2000- 2099 1 67 67 67 393 2400- 2499 1 310 310 310 514 2,058,645

50 TOTAL 9 451 451 50 453 2,156,345

Recommendations

With a view to increasing low labour productivity in the region, it is expedient to encourage capital formation/accumulation by making certain changes to various government-supported activities.

Due to the low income of the population, finances are not readily available; therefore, more active support is needed and the existing government mechanisms need more facilitation (credit guarantee schemes, interest co- funding, and micro and small grant projects).

The analysis carried out with a view to identifying more competitive sectors, revealed that the most promising sectors in Guria are: hotels and restaurants, construction, trade, transport and communication.

In order to fully utilize Guria’s potential in the development of hotel and restaurant/tourism, the infrastructure should be developed. Including, building roads leading to the cultural monuments and preserved territories (Nasakirali Ridge, completion of Bakhmaro and Gomi Mountain road) and developing small infrastructure on their nearby territories (toilets, parking lots, information billboards, small market-places, etc.).

With a view to developing bicycle paths and horse trails appropriate infrastructure with shelters should be developed (e.g. developing new trails in Bakhmaro, utilization the Kolkheti National Park’s full potential, etc,).

Bakhmaro as a skiing resort should be promoted throughlocal and international marketing campaigns. Promoting balneological resorts by improving the infrastructure and the roads leading to them (e.g. Nabeghlavi, Nasakirali). Retraining local people in various professional dimensions, including in rendering service, restaurant business, entrepreneurship, small hotel management, finances, and sales and so on. The tourist activities in the region are mainly concentrated along the Black Sea coastline. In order to develop tourism in other parts of the region, it is necessary to conduct an aggressive local and international marketing campaigns (as it happens in the case of Ajara).

51 Identifying Competitive Sectors in Imereti

Like Guria, the population in Imereti is also declining. As described by the figure, (see Figure 14) in the past 15 years the population has decreased from 614 thousand (2004) to 597 thousand (2019). According to the number of inhabitants, Kutaisi, in which 28% of all the region’s population is accumulated, takes the first place, followed by Zestaponi and Samtredia municipalities with 11% and 10%, respectively.

700.0

600.0

500.0

400.0

300.0

200.0

100.0

0.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Imereti Kutaisi Zestafoni municipality

Figure 20 -the population (thousand people)

According to the 2017 data, the service sector with 26,4% accounts for the largest share of Imereti GDP (see graph 15), followed by industry and agriculture with 17,2% and 12,9% shares respectively. As regards the dynamics of the total production, unfortunately, no individual data are available on Imereti until 2017 because until then the data were collectively published on Imereti, Racha-Lechkhumi and Kvemo Svaneti. However, examination of the 2017 figures makes it clear that Imereti’s share in almost every sector is higher than 90%. Hence, the dynamics of the joint figures is the result of the trends of the dynamics of Imereti economic sectors. Namely, in 2011-2017, the real growth of Gross Domestic Product was 17.6%. The fastest-growing sectors are: Industry (51,6%), different types of services (34,2%), construction (24,1%) and education (16,5%). While transport and communications (-19,4%) and trade (-16,5%) show declining trends.

52 1.4% 2.9% Other types of services 3.5% Industry

6.6% Agriculture, hunting and forestry; fishing 26.4% 8.1% Public administration Education

8.8% Health and social work

17.2% Trade; repare of motor vehicles and personal and household goods 12.2% Construction

12.9% Processing of products by households

Transport and Communication

Figure 14– GDP according to the sectors (current prices, mln GEL, %, 2017)

The number of the people employed in the business sector is on the rise (see table 4). Kutaisi accounts for almost half of the employed in business sector further emphasising the city’s importance. Kutaisi is followed by Zestaponi municipality with its 19% share. According to the employment rates, the largest sectors in the region include: industry (29, 7%), trade (22,7%) and healthcare and social services (13,7%). The number of the people employed in each sector has been rising. In the absolute depiction, the biggest rise in the employement is manifested in the trade sector with more than 5,000 people employed. In relative depiction the biggest increase is obvious in placement and transportation and communications sectors.

Table 5: the number of people employed in Business Sector As for the employment and unemployment indicators, the figures for Imereti, Racha-Lechkhumi and Kvemo Svaneti are given in a combined form. According to the official statistics, the unemployment level in the region in 2018 stood at 12,4%. The unemployment index in recent years has been rather volatile. As in the case of Guria, when determining the unemployment rate, a major role is played by the number of the self-employed basically represented by small household economies (see figure 17).

53 15.0% 14.5% 14.0% 14.0% 12.9% 13.0% 13.0% 12.4% 12.4% 11.8% 11.6% 11.5% 12.0% 11.4% 11.4% 11.2% 10.9% 10.6% 11.0% 10.4%

10.0% 9.1% 9.0%

8.0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Graph15 - Unemployment (Imereti, Racha-Lechkhumi and Kvemo Svaneti)

As evidencd by the figure, the share of the self-employed of ll the employed labourforce is rather high. However, it should be highlighted that in recent years, the index shows a declining trend.

350 80% 70% 300 1 66% 2 5 67% 3 67% 65% 2 65% 2 65% 0 0 60% 250 57% 56% 50% 200 200 192 198 197 188 151 154 182 40% 150 30% 100 20% 121 50 101 102 93 93 100 95 113 10% 0 0% 2011 2012 2013 2014 2015 2016 2017 2018

Hired Self Employed Not detected Share of Self Employed

Figure16 - Distribution of the employed (Imereti, Racha-Lechkhumi and Kvemo Svaneti) (people in thousands)

Along with the high unemployment level, the salaries stand at rather a low position (698 GEL). Of all the municipalities, the payments are at the highest in . As regards the sectors, the salaries are highest in power and gas production and mining industry.

Imereti – Evaluation of the Location Quotient (LQ) The location quotient calculated according to the number of the employed indicates the leading sectors in Imereti region are as follows:

54

 Mining industry;  Processing industry;  Healthcare and social services;  education; The same coefficient was estimated by added value, in which case the major sectors of the region are as follows:  Mining industry;  Processing industry;  Healthcare and social services  Hotels and restaurants;  Agriculture. Hunting and forestry. LQ LQ added Sector Employmen value t Agriculture. Hunting and forestry. 0,6 1,1 Fisheri, fishing. 0,7 0,1 Mining industry 4,0 4,0 Processing industry 1,9 2,6 Power generation, gas and water production and distribution. 0,3 0,2 Construction 0,9 0,9 Trade; repair of automobiles, household appliances and personal items 0,9 0,8 Hotels and restaurants 0,9 1,1 Transport and communication 0,4 0,2 Operations in real estate, rent and rendering customer service 0,6 0,5 Education 1,1 0,7 Helathcare and Social service 1,4 1,6 Communal, social and personal service 0,6 0,2 Table 13–Imereti – Location Quotient

Imereti – Analysis of Economic Changes (Shift share) Sfit Share analysis carried out with a view to identifying the region’s competitive sectors tok account of the employed labourand the created added value. According to the number of the employed, the leading sectors in the region are as follows:  Hotels and restaurants;

55  Construction;  Transportation and communications;

Quantitative changes in Sector NGE IME CE employment (2017 - 2010) Agriculture. Hunting and forestry. 473,6 -39,1 -527,4 -93,0 Fisheri, fishing. Mining industry 1.170, 3 -147,2 -31,1 992,0 Processing industry - - 8.965, 4.925, 2.572, 0 8 2 1.467,0 Power generation, gas and water production and distribution. 681,9 -628,4 -515,4 -462,0 Construction 1.647, 0 174,2 904,9 2.726,0 Trade; repair of automobiles, household appliances and personal 3.420, 4.079, items 3 3 -5,6 7.494,0 Hotels and restaurants 1.162, 467,3 501,4 2 2.131,0 Transport and communication 880,8 -455,6 598,7 1.024,0 Operations in real estate, rent and - rendering customer service 1.572, 1.237, 1 997,9 0 1.333,0 Education - 1.559, 1.186, 6 -512,9 7 -140,0 Helathcare and Social service - - 5.914, 4.188, 2.151, 5 2 3 -425,0 Communal, social and personal - service 1.007, 969,0 418,9 9 380,0 Table 14–Imereti -Shift-Share analysis

56 The highest growth in the employment caused by the sector’s competitiveness was evident in the hotels and restaurant business.

Shift Share analysis based on the created added value indicated that the competitive sectors are as follows:  Trade; repair of automobiles, household appliances and personal items;  Construction;  Hotels and restaurants;  Mining industry  Transportation and communication Changes in the added Sector NGE IME CE value (2017- 2010, mln GEL) Agriculture. Hunting and forestry. 3,7 1,8 -0,3 5,2 Fisheri, fishing.

Mining industry 32,0 -11,5 27,6 48,1 Processing industry 321, - -99,1 194,0 4 28,3 Power generation, gas and water 24,5 -16,9 -8,2 -0,6 production and distribution. Construction 31,5 34,8 53,1 119,4 Trade; repair of automobiles, household appliances and personal items 57,2 3,5 89,7 150,4

Hotels and restaurants 2,6 2,6 35,7 40,8 Transport and communication 17,8 -9,1 13,4 22,2 Operations in real estate, rent and - 40,8 31,2 40,8 rendering customer service 31,3 Education 9,0 0,8 -4,6 5,2 Helathcare and Social service - 78,7 6,3 44,0 41,0 Communal, social and personal service - 9,9 8,0 2,5 15,5 Table 15–Shift Share analysis, VAT

Due to the sector’s competitiveness, the biggest share of the added value was created in trade and automobiles, household appliances and personal items’ repair sectors. In 2010-2017, the added value increased by 150,5

57 million GEL in the given sector in Imereti, out of which 89,7 million can be put down to the sector’s competitiveness.

Calculating the Total Scores

In the Shift shareanalysis after ascribing and combining certain points based on the number of the employed labour and created added value to the competitive branches, the major sectors in the region turn out to be:  Construction;  Hotels and restaurants;  Trade;  Repair of automobiles, household appliances and personal items  Transport and communications.

Points (according to Points the number (according Total Sector of the to the points employed added value) labour) Agriculture. Hunting and forestry. -4 -1 -5 Fisheri, fishing. 0 0 0 Mining industry -2 2 0 Processing industry -9 -5 -14 Power generation, gas and water production and distribution. -3 -3 -6 Construction 2 4 6 Trade; repair of automobiles, household appliances and personal items -1 5 4 Hotels and restaurants 3 3 6 Transport and communication 1 1 2 Operations in real estate, rent and rendering customer service -7 -6 -13 Education -6 -2 -8 Helathcare and Social service -8 -7 -15 Communal, social and personal service -5 -4 -9 Table 16–Calculating Total points

58 Imereti – Construction sector

In recent years, Imereti construction sector was characterized by a growing trend; in 2017 constituted 4% of the Gross Domestic Product of Imereti.

4,000 4% 4% 3,500 3% 3% 4% 3,000 3% 3% 3% 2,500 2% 3%

2,000 2% 2% 2% 2% 2% 2%

MillionGel 1,500 2% 2%

1,000 1%

500 1%

0 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

GDP in Imereti in basic prices The construction share in GDP

Figure17–Capital flow dynamics in the construction sector

In 2017, the construction sector of Imereti created added value worth 136.5 mln GEL constituting 13.5% of the added value created in Imereti’s private sector. In 2017, the added value incresead by 71.5% compard to 2016.

Construction Sector in Imereti 300.0 400% 350% 250.0 300% 200.0 250% 200% 150.0 150% 100% MillionGel 100.0 50% 50.0 0% -50% 0.0 -100% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Turnover Production output Added value Growth rate (turnover) Growth rate (output) Growth rate (added value)

Figure 18 (Bar Chart) -the dynamics of the construction sector

59

In 2017, the production of the construction sector in Imereti amounted to 265.7 mln, constituting 11.7% of the private sector here. In 2017, compared to 2016, the production level of the construction sector in Imereti rose by 24.7%. In 2017, the turnover of the construction sector in Imereti amounted to 242.3 mlin GEL, constituting 7% of the total turnover of Imereti private sector; in addition, in 2017 the turnover increased by 16.4% compared to the previous year. In 2017, the investements made in the fixed assets in Imereti amounted to 10.3 mln GEL, constituting 9.8% of all the investments made in the private sector here. In 2017, the investments made rose by 145% compared to 2016.

18.0 25% 16.0 14.0 20% 20% 12.0 15% 10.0 12% 8.0 10% MillionGel 10% 10% 6.0 9%

4.0 5% 4% 4% 4% 2.0 2% 2% 2% 0.0 0% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Investments in the construction sector Share in the total investments of the region

Figure19– Investment dynamics in the construction sector

In 2017, 4,837 people were employed in the construction sector in Imereti, constituting 9.3% of the employed in the private sector here. In 2017 compared to 2016, the employment in the construction sector increased by 3%. The mentioned increase exceeded the employment growth rate in the construction sector in the whole of Georgia, constituting 1.9% at that time.

60 6,000 16% 14% 5,000 14% 12% 12% 4,000 10% 9% 9% 9% 9% 9% 9% 9% 9%

3,000 8% 8% Units 6% 6% 2,000 4% 1,000 2% 0 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

The number of the employed in the construction sector Share in the total employment in the region

Figure 20–Dynamics of employmengt in the construction sector.

According to 2017 figures, the construction sector of Imereti with its added value and turnover as well as the production rate, investment levels in the fixed assets and the number of employees, takes the third place after Tbilisi and Ajara region. In 2017, the average monthly salaries of the hired labourin the construction sector in Imereticonstituted 842.5 GEL, which was 74.3% less than average monthly salary in the same sector in Georgia. In 2017, compared to 2016, the given sector saw a 3% increase in real salaries.

900.0 40% 35% 800.0 32% 30% 700.0 20% 18% 20% 600.0 16% 500.0 9% 10%

GEL 3% 400.0 0% -5% -4% 300.0 -8% -10% 200.0 -20% 100.0 -20% - -30% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

The salaries of the hired labour in the construction sector Real salary growth rate

Figure21–Salary dynamics in the construction sector

61 As suggested by the 2017 data, the average monthly salary in the construction sector in Imereti is behind the average monthly salary of Tbilisi and all the other regions except the regions of Kakheti, Kartli, Racha- Lechkhumi, Svaneti, Samegrelo-ZemoSvaneti and Samtskhe-Javakheti.

Figure 29 – construction licences issued

800 700 600 500 400 300 200 100 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

The number of the construction licenses issued The number of the completed projects

In 2017, the construction projects completed in Imereti constitutes total of 111869 m2 exceeding the corresponding figures of 2016 by 7%.

350000

300000

250000

200000

150000

100000

50000

0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

The area of the issued permissions (licenses), m2 The area of the completed buildings, m2

Figure 30 – licenced constructions according to the areas

62 Enterprises operating in the construction sector in Imereti In the construction sector in Imereti, there are 1581 registered enterprises, out of which only 22 are active; their 87% percent are sole traders and only 13% are limited liability companies.

Business Demography indexes – birth and death of enterprises In 2012-2017 in Imereti, 708 new enterprises were set up. The newly set- up enterprises outnumbered the ones deciding to exit the market; there were 498 enterprises of this kind. In 2017, compared to the previous year, the number of newly set-up enterprises in the construction sector in Imereti increased by 14%, while the number of the dead enterprises rose by 25%.

2012 2013 2014 2015 2016 2017 Birth 123 132 120 130 95 108 Death 71 89 100 78 71 89

2016 2017 Survived 97 70 Survival rate 74.6% 53.8%

Table17–Birth and death of the enterprises and their survival rate

In 2016, out of the enterprises set up in 2015, 74.6% were operational; while in 2017 only 53.8% survived.

Recommendations

One of the principal challenges facing the construction companies operating in Imereti is lack of qualified labour with appropriate technical skills needed for different positions in construction business. Equipment bought abroad is widely utilized. In certain cases, foreign consultants hold training for the local labourers. Major construction companies involved in road and other infrastructure construction are satisfied with the quality of the services rendered by the governmental agencies, however, in certain cases some faults are identified. For instance, certain inaccuracies in the offered projects in the tender applications forces the construction companies to do some extra work, which leads to more expenses than established by the tender terms and conditions. In addition, as the construction companies use

63 materials imported from abroad, Georgian Lari’s volatility against the foreign currency and its devaluation affects their profit margins.

Recommendations

 Establishement and development of vocational educational centres by the government in Imereti region and creating better incentives for the youth to learn there will eventually result into an increase in the skilled workforce, which, in its turn, will tell on the efficiency of the construction companies’ operations and enhance their quality. In addition, better qualification will make the workforce more competitive and eventuate into increased salaries in the sector.  Higher accuracy in the tender projects applications will allow the local construction companies to better evaluate the project-related expenses and prognosticate their profit margins with greater accuracy.  Securing greater stability of the exchange rate by the government will allow the local enterprises to avoid substantial expenses caused by the local currency devaluation.

Racha-Lechkhumi and Kvemo Svaneti

From 1994 to 2019, the population almost halved in Racha-Lechkhumi and Kvemo Svaneti (declined from 61,6 thousand to 29,7 thousand). According to the number of inhabitants, the largest municipality in the regon is – Ambrolauri, with, according to 2019 statistics, 10,6 thousand people, out of which 2 thousand live in Ambrolauri itself.

64 70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0

Ambrolauri Municipality Oni Municipality

Graph22–Population Racha-Lechkhumi and Kvemo Svaneti (in thousands)

Leading in the economy of Racha-Lechkhumi and Kvemo Svaneti are different types of services having 31,1% share in the regions GDP (see Figure 19); Agriculture with its 18,4% share takes the second place. As regards the sectors and the general dynamics of the economic development, as mentioned in the previous chapter, Racha-Lechkhum Kvemo-Svaneti were not considered separately in the GDP calculations and the data were complacently published together with the figures on Imereti (for more discussion see the sub-chapter on Imereti).

2.5% 0.3% 3.5% Other types of services

Agriculture, hunting and forestry; fishing 5.1% Public administration 5.1% 31.1% Education

9.5% Health and social work

Industry

10.3% Construction

Processing of products by households 18.4% 14.3% Trade; repare of motor vehicles and personal and household goods

Transport and Communication

65 Figure 32 (pie chart) – GDP according to the sectors (in the current prices, mln. GEL % 2017) The number of people employed in the business sector is increasing (see graph 20). A Half of the employed in the business sector are employed in , followed by Oni-Tsgaeri and Lentekhi municipalities. According to the employment rates, the largest sectors are: construction (27%), trade (25%), and industry (18%). In all the mentioned sectors, except construction, the number of employees has been on the rise compared to 2011. In the absolute depiction, the highest growth was observed in trade, withe 421 employees. In relative terms, the biggest rise is observed in transportation and communications; however, the given sector in the given region employes only 51 people.

1,200

992 972 1,000 917

737 800 705 646 655 600 443 457 438 395 348 373 349 400 314 306

200

0 2014 2015 2016 2017

Ambrolauri Municipality Oni Municipality Tsageri Municipality Lentekhi Municipality

Graph 23– The number of people employed in business sector

As regards the salaries, hired labour’s salaries of Racha-Lechkhumi Kvemo Svaneti are the lowest in the country (510 GEL per month). According to the 2017 data, the salaries were the highest in Lentekhi and the lowest in Ambrolauri municipalities. As for the sectors, the highest salaries are given in the mininig business in the region (885GEL); the lowest in the Information-Communication sector (200 GEL). As mentioned in the previos sub-chapter, there are no separate data on the unemployment and other indicators related to the labour market.

66 800.0

700.0

600.0

500.0

400.0

300.0

200.0

100.0

- 2014 2015 2016 2017

Region Lentekhi Municipality Oni Municipality Tsageri Municipality Ambrolauri Municipality

Figure 34 – Average monthly payment of the hired labour

The Location Quotient calculated according to the number of the employed indicated Racha-Lechkhumi and Kvemo Svaneti leading sectors are as follows:

 Agricutulture. Hunting and Forestry  Fishery, Fishing.  Mining industry  Construction  Hotels and restaurants  Processing industry  Trade; repair of automobiles, household appliance and personal items (LQ = 1).

The added value analysis made it clear that the leading sectors of the region are a follows:  Agriculture. Hunting and Forestry;  Mining industry  Hotels and restaurants  Processing industry  Construction

67 LQ Sector LQ Added value Employment

Agriculture. Hunting and 5,5 16,0 Forestry Fishery, fishing 3,6 0,0 Mining Industry 2,5 3,7 Processing industry 1,2 2,0 Power generation, gas and water production and 0,0 0,0 distribution Construction 2,5 1,6 Trade; Repair of automobiles, household appliances and 1,0 0,5 personal items Hotels and restaurants 1,3 3,1 Transport and 0,2 0,0 communication Operations in real estate, rent and rendering customer 0,6 0,6 service Education 0,0 0,0 Helathcare and Social service 0,1 0,1

Rendering communal, social 0,6 0,1 and personal serice

Table 24 -Location Quotient calculated according to the number of the employed

RachaLechkhumi and Kvemo Svaneti – Aanalysis of Economic Changes (Shift Share Analysis)

Relying on the shift share analysis we could claim that the leading branches here are as follows:  Trade; Repair of automobiles, household appliances and personal items  Hotels and restaurants

68  Operations in real estate, rent and rendering customer service  Transport and communication  Agriculture. Hunting and forestry  Processing industry

Quantitative changes in employmengt(i Sector NGE IME CE n 2017 compared to 2010)

Agriculture. Hunting and Forestry 90,5 -7,5 31,0 114,0 Fishery, fishing 17,9 -11,6 -22,3 -16,0 Mining Industry 39,8 -5,0 -12,8 22,0 - 202, Processing industry 111, 15,6 107,0 8 5 Power generation, gas and water 19,5 -18,0 -26,5 -25,0 production and distribution - 615, Construction 65,1 837, -157,0 6 7

Trade; Repair of automobiles, household 138, 164, 112, 415,0 appliances and personal items 1 7 2

Hotels and restaurants 28,1 30,1 91,8 150,0 Transport and communication 17,2 -8,9 20,7 29,0 Operations in real estate, rent and 33,5 21,3 36,2 91,0 rendering customer service Education 0,0 0,0

- - 184, Helathcare and Social service 130, 266, -213,0 1 4 7 - Rendering communal, social and 128, 55,7 272, -88,0 personal service 7 4 Table18–Racha-Lechkhumi and Kvemo Svaneti – Shift Share analysis

69 As it turned out, rise in competitiveness of trade, automobiles, household appliances and personal itemsrepair sector contributed to the increase in employment figures more than the others. In 2010-2017, only 415 jobs were created in the given sector out of which 112,2 were conditioned by increase in competitiveness.

Shift share analysis conducted according to the added value figures made it evident that the competitive sectors in the region are as follows:  Processing industry  Hotels and restaurant  Trade; automobiles, household appliances and personal items repair;  Operations in the reasl estate, rent and rendering customer service  Mining industry

Shifts in the added value (in Sector NGE IME CE 2017 compared to 2010) (mln. GEL)

Agriculture. Hunting and Forestry 3,1 1,5 -2,9 1,7 Fishery, fishing

Mining Industry 0,7 -0,3 1,0 1,5 Processing industry 1,1 -0,3 7,2 8,0 Power generation, gas and water production 1,1 -0,8 -0,9 -0,6 and distribution - Construction 11,6 12,8 1,8 22,6

Trade; Repair of automobiles, household 0,6 0,0 2,8 3,4 appliances and personal items

Hotels and restaurants 0 0 3 3,4 Transport and communication 0,1 0,0 0,1 0,1 Operations in real estate, rent and rendering 0,4 0,3 1,3 1,9 customer service Education

70 Helathcare and Social service 1,8 0,1 -2,9 -0,9 Rendering communal, social and personal 0,6 0,4 -1,1 -0,1 service Table19–Racha-Lechkhumi and Kvemo Svaneti – Shift share analysis, VAT

As a consequence of competitiveness of the sector in 2010-2017, the highest added value (7.2. mln) was created in the processing industry.

Calculating total scores By combining the scores assigned to the competitive branches revealed through the employment and added value figures in the Shift Share analysis it becomes evident that the major sectors in Racha-Lechkhumi and Kvemo Svaneti region are as follows:

 Hotels and restaurants  Trade; Repair of automobiles, household appliances and personal items  Operations in real estate, rent and rendering customer service  Processing industry  Transport and communication  Mining industry

Score (according Score (according Sector to the number of to the added TOTAL the employed) value) Agriculture. Hunting and 3 -4 -1 Forestry Fishery, fishing -2 0 -2 Mining Industry -1 2 1 Processing industry 1 6 7 Power generation, gas and water production and -3 -1 -4 distribution Construction -6 -5 -11 Trade; Repair of automobiles, household 6 4 10 appliances and personal items Hotels and restaurants 5 5 10 Transport and 2 1 3 communication

71 Operations in real estate, rent and rendering 4 3 7 customer service Education 0 0 0 Helathcare and Social -4 -3 -7 service Rendering communal, social -5 -2 -7 and personal service Table 20–Calculating the total score

Racha-Lechkhumi and Kvemo Svaneti – Hotels and Restaurant Sector

5.0 700%

4.5 600%

4.0 500% 3.5 400% 3.0 300% 2.5 200%

2.0 MillionGEL 100% 1.5 1.0 0% 0.5 -100% 0.0 -200% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Turnover Production Added value Growth rate (turnover) Growth rate (production) Growth rate (added value)

Figure 34a. Hotel and Restaurant sector in Racha-Lechkhumi and Kvemo Svaneti

In 2017 the added value created in hotels and restaurants of Racha- Lechkhumi and Kvemo Svaneti increased by 63.6% compared to the previous year constituting 3.6 mln GEL, which, in its turn, constituted 11.3% of the added value created in the private sector in the region that year. Compared to the previous year, in 2017 the turnover in hotel and restaurant sector in Racha-Lechkhumi and Kvemo Svaneti increased by 60%, constituting 4.5 mln, which, in its turn, constituted 8% of the production of the private sector of the whole region in the year.

72 In 2017, the turnover of the hotels and the restaurants of Racha-Lechkhumi and Kvemo Svanetiamounted to 4.5 mln GEL, constituting 5.6% of the region’s private sector; the turnover in 2017 increased by 61% compared to the previous year.

In 2016 like in 2017, the investments made in the hotel and restaurants remained at zero point.

Investment Dynamics 0.3 10% 9% 0.2 8% 7% 0.2 6% 5% 0.1 4%

MillionGEL 3% 0.1 2% 1% 0.0 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Investments in the hotels and restaurants sector Share in the whole investments made in the region

Figure24–Hotel and restaurants sector in Racha-Lechkhumi and Kvemo Svaneti; investment

In 2017, 186 people were employed in hotel and restaurants sector of Racha-Lechkhumi and Kvemo Svaneti comprising 7.8% of all the employed in the private sector. In 2017, compared to 2016, the employment rate was 9.4% higher.

Figure 25–Hotels and restaurants sector in Racha-Lechkhumi and Kvemo Svaneti, employment dynamics

73 200 9% 8% 180 8%8% 160 7% 7% 140 6% 120 5% 5% 100

Units 4% 80 3% 60 3% 2% 3% 3% 40 2% 2% 2% 2% 1% 20 1% 0 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

The number of employed in the hotels and restaurants sector Share in the employment figures in the whole region

The 2017 figures make it clear that the hotel and restaurant sector in Racha-Lechkhumi and Kvemo Svaneti are far behind all the other regions of Georgia according to the added value and turnover as well as according to the number of people employed here.

500.0 200.00% 450.0 175% 162% 150.00% 400.0 123% 350.0 100.00% 300.0 250.0 56%50.00%

GEL 43% 200.0 26% 8% 0% 0.00% 150.0 -28% 100.0 -46% -50.00% -59% 50.0 - -100.00% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Salary of the hired labor in the hotels and restaurant sector Real salaries growth rate

Figure26–Hotel and restaurant sector in Racha-Lechkhumi and Kvemo Svaneti, employment dynamics

According to 2017 data, average monthly salaries of the people employed in the hotel and restaurant sector in Racha-Lechkhumi and Kvemo Svaneti was relatively high, constituting 443 GEL, which was higher than in Imereti, Guria, Samegrelo-ZemoSvaneti, ShidaKartli and Kvemo Kartli but was 52% lower than the average salary of the same sector in the rest of Georgia. In 2017, the real salaries in the sector of the region increased by 56%.

74

14,000

12,000 3,183 10,000

8,000

6,000 2,984 9,574 4,000

2,000 4,306

- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

From Georgia From Abroad

Figure27–Hotel and restaurant sector in Racha-Lechkhumi and Kvemo Svaneti; the number of guests in the hotels and hotel-type establishments according to the place of arrival.

In 2017, 3,183 foreign tourists stayed at the hotels and hotel-type establishments in Racha-Lechkhumi and Kvemo Svaneti, out of whom 42% were from the European Union, 40% from different CIS countries.

120%

100% 10% 14% 18% 18% 18% 80% 38% 38% 29% 54% 72% 34% 60% 80% 40% 88% 51% 90% 40% 42% 39% 58% 32% 48% 20% 14% 42% 4% 31% 20% 22% 13% 16% 14% 13% 0% 0% 0% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

From the EU countries From CIS countries From other countries

Figure28 Foreign guests staying at the hotels and hotel-type establishments.

75

In 2012-2017, 47 new enterprises were set up in hotel and restaurant sector in Racha-Lechkhumi and Kvemo Svaneti; 18 enterprises exited the market.

92.9% of the enterprises set up in 2015 continued operations in 2016; while in 2017, 71.4% continued functioning.

2012 2013 2014 2015 2016 2017 birth 7 10 4 14 7 5 death 4 5 5 4 Survivors 13 10 Surviving 92.9 71.4 share

Table21–Business demography figures

Existing Challenges and Development Potential

Great majority of the hotels, hotel-type establishments and eateries in Racha-Lechkhumi and Kvemo Svaneti are located in Ambrolauri, which makes the local market competitive and encourages the entrepreneurs to increase production and service. Additional stimulus for production development is created by the increase in the tourist numbers in the region. The sector is basically represented by family-run hotels offering the holidaymakers bed, food and sightseeing tours. Another popular direction is wine-cellars. Unique breeds of grapevines, breathtaking views, resorts and historical monuments add attraction to the region and lure visitors. However, the offered services are nor diverse. Significant resources of funds needed for the entreprise development are government issued grants, which are rather limited in amount. The National Tourism Agency and international organizations periodically hold trainings for the local entrepreneurs, which allow them to betten do their jobs. The current infrastructure development level in Ambrolauri in respect of roads, transport, water, power, natural gas and internet access create development opportunities and allow the existing enterprises to be operative all year round; however, in this respect the villages of the region experience certain difficulties, which, in its turn, hinders development of the hotel and restaurant sector here. Natural calamities in certain settlements of the

76 region (e.g. Lentekhi) make it unstable and hinder development of entrepreneurship.

It is worth mentioning that the planned infrastructure development projects will significantly reduce time of travelling to the region and increase its connectivity with other regions, which, in its turn, will lead to increase in demand for the hotel and restaurant sector.

Recommendations

Due to the rising tourist numbers coming to Georgia and the growing visitor dynamics, quantitative and qualitative increase in demand for the region’s hotels and resaturants is expected, which will make the region more attractive from the commercial perspective and necessitate more governmental support for the sector.

 For the sector development the government should give financial assistance to the local entrepreneurs, which can be accomplished by increasing the volume of grant programmes in the hotel and restaurant sector (e.g. micro and small grant programme offered by LEPL “Produce in Georgia”, interest co-funding programmes, etc.).  Development of the hotel and restaurant sector in the region is significantly affected by the number of foreign and local tourists, which is why government should facilitate promotion of the region through various marketing campaigns. On the one hand, the campaign will increase the visitors’ numbers in the region and on the other, will draw potential investors’ attention to the region’s investment potential.

 In addition, in order to fully develop the region’s potential, development of the tourist infrastructure is vital (e.g. putting up toilets, tourist trecks, billboards, etc); the roads leading to the villages should be put in order and the villages be provided with uninterrupted water, gas and power supply and internet access, which will give the local people additional incentive for developing entrepreneurial activities in the hotel and restaurant sector.  The authorities should organize trainings and qualification enhancement courses for the entrepreneurs engaged in the hotels and restaurant sector; trainings should be held on how to post on e.g. Booking.com or other international tourist web sites.

77  In order to enable Racha-Lechkhumi and Kvemo Svanetihotel and restaurant sector to respond to the growing market demands, new and diverse tourist services should be offered; e.g. the region’s agro or extreme tourism potential should be utilized and new touristic activitiesdeveloped.

78 Summary

In the applied research, Guria and Racha-Lechkhumi are considered as individual functional regions,rather than a whole one,whose borders coincide with their administrative borders. The centres of gravity around the city of Kutaisi have been revealed; the second and third category gravity centres have been identified by applying transport communication matrix, which made it evident that such centresin Imereti region are towns of Samtredia and Zestaponi, in Guria town of Ozurgeti and in Racha-LechkhumiAmbrolauri. Correspondingly, competitive economic sectors were identified not in the whole research area but for each region individually. In the case of Guria and Racha-Lechkhumi, the hotel and restaurant sector was described and appropriate recommendations were developed; while in the case of Imereti, the construction sector was described. Interviews with the municipality and regional administration representatives and in-depth interviews of experts of relevant spheres revealed challenges facing each region regarding development of the described competitive sector; appropriate recommendations have been drawn up.

79 Appendix

Questionnaire for the Municipalities

https://forms.gle/Vu1YsWAbEfVr2fj47

In-depth interview questionnaire What can you say about the leading businesses in the region which are carrying out their activities in the sphere (specialization 1/2/3]?

What type of employers/companies dominate the industry? What are the advantageous factors that cause the employers/entrepreneurs to opt for your region rathet than for the others? How would you evaluate development of these advantages in the recent two/five/ten years? How would these advantages improve throughpublic regional policy…? Investments…? Policy of planning? What can be considered a hindering factor for the people employed in the sphere [specialization 1,2,3], which depends on the specifics of the region? Which hindenering factors can be eliminated by public policy and investements? What do you mean by practical aspect of these involvements?

Communications Matrix:

Kutaisi Zestaponi Tskaltubo Vani Khoni Sachkhere Chiatura Tkibuli Baghdati Terjola Kharagauli Samtredia Ozurgeti Lanchkhuti Chokhatauri Tsageri Oni Ambrolauri Batumi Tbilisi Kutaisi 1 4 8 8 1 1 1 3 4 2 7 0 0 3 2 0 1 1 2 0 2 1 1 0 0 2 Zestaponi 3 0 0 0 0 4 2 7 3 9 0 0 0 0 0 0 0 3 1 3 0 6 Tskaltubo 3 5 0 1 0 0 0 0 0 0 2 0 2 2 0 0 0 2 5 4 0 Vani 1 0 0 0 0 0 0 0 0 0 1 0 1. 0 0 0 0 3 3 0 6 5 Khoni 3 0 1 0 0 0 0 0 0 0 1 0 0 0 0. 0 0 4 3 6 . 0 5

80 5 Sachkhere 5 0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 1 1 5 Chiatura 6 3 0 0 0 3 2 0 0 0 1 0 0 0 0 0 0 2 1 0 7 Tkibuli 7 6 0 0 0 0 2 0 0 1 0 0 0 0 0 0 1 1 7 Baghdati 1 6 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 6 . 7 Terjola 2 7 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5 0 . 7 Kharagauli 4 4 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 2 Samtredia 4 0 0 1 1 2 0 0 0 0 0 1 0 0 0 0 0 1 1 2 4 4 Ozurgeti 7 0 0 0 0 0 0 0 0 0 0 1 4 0 0 0 0 2 8 0 Lanchkhuti 0 0 0 0 0 0 0 0 0 0 0 0 5 0 0 0 0 4 1 Chokhatauri 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 8 2 Tsageri 3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 . . 2 1 Oni 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 3 Ambrolauri 4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0. 1 1 4 2

81