Covid-19 pandemic has highlighted the importance of local production and the need to diversify supply chains, as companies were paralyzed by the disruptions of their supply chains after China’s lockdown. According to analysts, this pandemic will significantly change the world economic model for the next decade – economies will become more autonomous, focusing on the regional concentration of supply chains and meeting regional demand.
In recent years, Georgia’s economic growth was driven by services, with tourism being a catalyst and boosting also trade, construction, and other services sectors. The share of services in the Georgia’s economy increased from 60% to 78% over 2009-2019. However, most of the revenue generated from these sectors were driving imports, as production base was low – we estimate that out of US$ 3.3bn revenues from tourism in 2019, only US$ 1.3bn was retained in the economy.
Georgia’s new economic growth model should focus on enhancing production potential. In this regard, both the stimulation of local companies and the attraction of foreign investments are crucial.
We see production potential in agriculture in the following areas: meat and dairy products, grains, vegetables and fruits, food processing. In this regard, Georgia has the potential to substitute imports worth of US$ 400mn and also to diversify exports. Land consolidation and low productivity remain the main challenges in this sector.
Construction sector is very import-intensive, and we estimate that by encouraging local production in certain areas, it will be possible to substitute imports worth of US$ 450mn. According to preliminary estimates, production of the following products is feasible: wires and cables, re-bars, plastic materials, paints, furniture, electric water heaters, articles of iron and steel, wood materials, ceramic products, cement clinker.
Georgia needs new strategy to attract FDI, especially considering increased competition globally. We see potential for attracting foreign investments in the following sectors: textile, apparel and leather manufacturing, manufacturing of automobiles & auto parts, pharmaceuticals and other chemical production, manufacturing of home electronics, transport and logistics, business process outsourcing. At the same time, the qualification of the labor force and the shortcomings in infrastructure are one of the main obstacles for FDI attraction along with the judiciary system.
