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Steelmakers must focus on high growth sectors and markets

Saturday, April 19, 2014
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World Bank: Policy Uncertainty is a Risk for Investors

Written by Madona Gasanova, The FINANCIAL

01/07/2013 10:12 (291 Day 15:39 minutes ago)


The FINANCIAL -- “Policies aimed at further enhancing the investment climate, lowering the cost of credit, strengthening local currency financing to reduce foreign exchange borrowing and further support wider financial access, and improving the mix of skills that workers have to align better with firms’ needs, remain priorities. Policy uncertainty is typically viewed as a risk by investors,” Ms. Rashmi Shankar, Lead Economist at World Bank, told The FINANCIAL.



Shankar suggested that Russian market needs to be tapped by Georgia. “The Russian market has proved to be unstable for Georgia in the past, but it is the closest big market for the country, and therefore definitely needs to be tapped,” she said.

The growth projection of the Georgian economy for 2013 is 4 percent. In fiscal year 2013, the World Bank ’s total lending is in the range of USD 135 million (including the very latest credit - the Second Competitiveness and Growth Development Policy Operation in the amount of USD 60 million that was approved by the World Bank Board of Executive Directors on 27 June). In 2012, total lending amounted to USD 263 million.

Ms. Rashmi Shankar -- Lead Economist and PREM (Poverty Reduction and Economic Management) Sector Leader, South Caucasus Regional Office, Eastern Europe and Central Asia, World Bank , discussed the situation in Georgian.

“Our growth projection for 2013 is 4 percent, which does represent a slow-down. The main reason for this was the fall in both foreign and domestic investment, which led to slower growth in the last quarter of 2012 and the first quarter of 2013. Recently Georgia went through a noteworthy and democratic political transition. Uncertainty about economic policy direction was to be expected under such circumstances, which affected investor confidence. As soon as clarity on policy direction is restored, a commitment to a competitive business environment, promoting FDI, and generating export-led growth will support recovery. We already see improved indicators in Q2.”

“We rely on investors to tell us what they see as the main constraints. The World Bank will shortly be releasing its report on sources of growth in Georgia, which highlights that the main concerns of firms seem to be cross-cutting and include worker skills, financial access and the high cost of credit. Clearly, it will also be critical to maintain focus on business environment reform, efficient public services and priority infrastructure investments. In addition, efforts to further reduce corruption and improve transparency, competition, and property rights will be important. These measures will also increase the country’s attractiveness for the international business community.”

Q.  IMF said recently that lowering the current account deficit, which stood at 11.8% of GDP in 2011, and reducing unemployment (16.3% in 2010) are the main challenges for the Georgian economy. In your opinion how can Georgia achieve this goal?

A. The current account deficit reflects high spending on both investment and consumption. To come down, as the economy grows, Georgia will have to generate domestic savings and improve export performance. For the current account to be sustainable while this happens, the deficit should be financed largely by FDI rather than by debt-creating flows. On addressing unemployment, a combination of policies to maintain a well-functioning labour market and strengthen investment in, and productivity and expansion of relatively labour-intensive export sectors will be important. We see success in increasing jobs in the growing textile sector in Adjara for example, where FDI, attracted by an improved regulatory environment and cheaper labour, has supported integration with an established global supply chain. In addition, it will be critical to continue to ensure there is a macro-prudential environment that supports macroeconomic stability and helps protect the economy from growth-reducing shocks.

Q. Can you explain why small and medium-sized enterprises in Georgia are experiencing slow growth?

A. Financial access, skilled workers, cost effective utilities and infrastructure, macroeconomic stability, an effective regulatory environment with low transactions costs, and support on business development are all helpful to SMEs’ productivity and growth. There is a strong need to focus on these enterprises so that they are able to compete, learn, access markets, and grow.



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