The European Union, GEPLAC and Georgian Economic Trends The
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The European Union, GEPLAC and Georgian Economic Trends The relations of the European Union (EU) with the countries of Eastern Europe and Central Asia were underpinned in 1991 through a programme of technical assistance called Tacis. Since then these relations have deepened through political dialogue into a partnership resulting in greater cooperation towards common goals. In the case of Georgia, such cooperation is the subject of a Partnership and Cooperation Agreement with the EU which entered into force in July 1999. The Georgian – European Policy and Legal Advice Centre (GEPLAC) was first established in 1998 as a project under the Tacis programme. The current phase of the project is being implemented by Deutsche Gesellschaft fur Technische Zusammenarbeit (GTZ) GmbH. In addition to Georgian Economic Trends (GET) and the Georgian Law Review, GEPLAC is involved in the provision of economic policy and legal advice to the government of Georgia on both a programmed and ad hoc basis. While GET is produced with the financial assistance of the EU, the content is the sole responsibility of the authors and can in no way be taken to reflect the views of the EU. Georgian Economic Trends Quarterly Review 2002 No. 3 GEORGIAN ECONOMIC TRENDS Georgian Economic Trends (GET), a quarterly GET also publishes feature articles by outside publication, aims to provide all those interested in contributors: academicians, government officials, the progress of economic reform in Georgia with a members of parliament, independent scholars and review of developments and transition. GET was researchers, etc. on economic issues of established in 1995 and is published in Georgian contemporary relevance in Georgia. Before being and English. This and previous editions of GET are accepted for publication, all articles will be reviewed available on the internet at: by members of GET Editorial Board that may also seek permission to edit such articles. Articles will www.geplac.org be published only if they are deemed to be consistent with GET editorial policy. Contributors The following people worked on this edition (in are requested to submit their papers either in alphabetical order): English or in Georgian by e-mail as an attached Word file to Veronica Schneider, editor-in-chief at George Eradze, Mark Hudson, David Jinjolia, [email protected] or to deliver them as a Word Natalia Kakabadze, Dimitri Kemoklidze, file on a diskette to the address below. Gocha Kereselidze, Vakhtang Marsagishvili, Erekle Natadze, Veronica Schneider, The ideas, opinions, findings, interpretations and Simon Stone, Irakli Tsereteli conclusions contained in the feature articles are those of the author(s) only and do not necessarily GET draws on information from a wide range of coincide with those of GET Editorial Board, neither government and non-government sources including do they represent any official view of the European in particular the State Department for Statistics, the Commission, the Georgian-European Policy and National Bank of Georgia, the United State Social Legal Advice Centre or the Government of Georgia. Safety Fund, the Ministry of Finance, the Ministry of Foreign Affairs, the Ministry of Economy, Industry Readers may quote any information used provided and Trade, the Ministry of State Property it is properly acknowledged. Management, the Ministry of Health and Social Affairs as well as other Government ministries and For further information or comments please contact: departments. Wherever possible every care is taken to ensure that data sources are fully Veronica Schneider acknowledged since without the full co-operation Editor-in-Chief and support of information providers, including Georgian Economic Trends regular consultation, it would not be possible to Georgian-European Policy and Legal Advice Centre produce this review. (GEPLAC) 42, Kazbegi Ave, Tbilisi 380077 The purpose of GET is to offer an independent Tel: (995 32) 53 71 40 / 53 71 42 / 53 71 43 analytical account of economic trends drawing on 53 71 45 / 53 71 46 information made publicly available. As part of this Tel/Fax: (995 32) 53 71 39 (direct) work, commentary and advice are offered on policy Fax: (995 32) 53 71 38 and on the collection and dissemination of E-mail: [email protected] economic and other information. These are always intended to support the process of economic reform To subscribe to GET, please, send an e-mail or fax in Georgia, and also to relate this to the Partnership stating your contact details and language of the and Cooperation Agreement between Georgia and edition to the e-mail address/fax numbers above. the European Union. However, they represent the view of the authors and editors only and do not represent any official view of the European Commission, the Georgian-European Policy and Legal Advice Centre or the Government of Georgia. GEORGIAN ECONOMIC TRENDS – 2002 No.3 GEORGIAN ECONOMIC TRENDS Contents Foreword 2 Part I. Economic Trends 1. Summary 5 2. National Accounts and Main Trends 8 3. Government Finance 14 4. Money and Finance 23 5. International Trade and Foreign Economic Relations 36 6. Privatisation 46 7. Employment, Incomes and the Social Safety Net 52 8. The EU-Georgian Relations 67 Calendar of Events 71 Part II. Appendix: Feature Articles I: Future Prospects of Caucasian Energy and Transportation Corridor 85 The Role of Caucasian Energy Corridor in European Energy Security Remarks to America-Georgia Business Council Conference by Howard Chase, Director, European Government Affairs, BP, Brussels II: Achievements and Failures of CEFTA: The Lesson for GUUAM 88 By Dr. Henryk Czubek and Dr. Edward Molendowski, Krakow University of Economics Part III. Statistical Appendix Statistical Appendix 106 Abbreviations 119 TRACECA Map 123 GEORGIAN ECONOMIC TRENDS – 2002 No.3 1 FOREWORD Dear Reader First of all, may we extend best wishes for 2003 from everyone at GEPLAC. This is inevitably a season for taking stock of things, and maybe also for some forecasting. We don’t propose doing so quantitatively in this edition of GET, as we published some projections in our last one, though it does seem a good time to consider the position of Georgia and its economy in the world, and in a qualitative sense. This is for two important reasons. Firstly, there was an extremely significant event in our region towards the end of last year, namely the official inauguration of construction work in Azerbaijan on the Baku-Tbilisi-Ceyhan (BTC) oil pipeline. This is described in some detail in one of our Chapters, and work will shortly begin in earnest, now that the first pipe shipments have been received. Secondly, the Copenhagen Summit of the European Union, held in December 2002 formally invited 10 countries (another 75 million people) in Central/Eastern Europe and the Mediterranean to become members in May 2004. As a result, the EU will then have 25 members with 450 million people, and the number of official languages will increase from 11 to 21. The number of members of the European Parliament will rise from 626 to 752. In regard to BTC, and apart from the likely financial benefits to Georgia, it is worthwhile also thinking about the wider significance of the new pipeline in relation to energy supplies to Europe; this is discussed in an article by one of our external contributors, Howard Chase of BP, based on an address to the America-Georgia Business Council Conference in Tbilisi in October 2002. At the same time, the construction activity in the Caucasus/Caspian region represents part of a general move towards establishing a much more substantial infrastructure of pipeline links between the former Soviet Union (both Russia and independent states) and other industrialised and industrialising regions. For example, there are important existing (and possible future) gas pipelines through Northern Europe and the Baltic region, and Russia is also in discussions regarding oil and gas transit with China and Japan, to which there are currently no pipeline links. Eastward pipelines might ultimately permit shipments to the west coast of the United States, which recently began purchasing small cargoes of Russian oil. However, these are all factors that come into play only in the medium term. Meanwhile, short-term fluctuations in oil prices exercise a fundamental influence on economic activity and confidence in most economies, while also determining the prosperity of producers. As of early January 2003, oil prices are around USD 30 per barrel, their highest level for 2 years, and up from USD 20 since the start of 2002. The latest surge reflects developments in the Middle East, but also the disruption of production through strikes in Venezuela. While OPEC has sought to ensure there are no short-term supply problems by increasing quotas of other members, we are fairly confident in predicting at least continuing uncertainty this year in regard to oil prices, and therefore also in the prospects for improved performance in Western economies. Turning to EU expansion, the agreement at Copenhagen marks the end of one major phase of negotiations between the EU and the candidate countries, and the commencement of another of final arrangements for accession. On a political level, nearly all candidate countries (the exception is Cyprus, and certain others still have to confirm dates) will hold referenda this year to ratify the actions 2 GEORGIAN ECONOMIC TRENDS – 2002 No.3 SUMMARY of their respective governments. There appears to be majority support for enlargement in every current EU Member State. A number of aspects of the enlargement process are of interest to us in Georgia, in particular: • Administrative and political relationships with the EU • Economic and legislative convergence. The former are the subject of the EU-Georgia Partnership and Cooperation Agreement (PCA) and there is an ongoing dialogue between the EU and the Government of Georgia at various official levels. The PCA also refers to the latter and forms the basis for GEPLAC’s current work on the National Programme for Harmonisation of law as it relates to economic activity.