Auto Re-export Will Be Replaced by Traditional Export Commodities in 2012, say experts

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The FINANCIAL — After the robust run-up of car re-export from Georgia to Kazakhstan in mid-2011 added to frog and sheep exports suddenly breaking into export markets in 2010-09 respectively, in 2012 Georgia will mainly depend on traditional export commodities such as ferro-alloys/scrap, mineral/chemical fertilizers and alike, say experts.


The top five goods exported in 2011 according to the National Statistics Office look as follows: Car re-export (20.6% from total goods exported) worth approximately 450.3 million USD up from 228 million USD in 2010, Ferro-alloys (12%) worth 255 million USD, Mineral/chemical fertilizers (6.6%) – 145 million USD, Nuts (6%) – 130 million USD, up from 65 million USD in 2010, Ferrous waste and scrap (5.3%) – 116 million USD

“Changing of the Georgian export structure in 2012 will be impossible, although some changes will be made in the list of top export items due to world market conjuncture,” says Giorgi Gaganidze, Deputy Dean at Tbilisi State University.

“The reason why car re-export moved up to 1st place in 2011 was due to the easing of custom tariffs supplemented with Georgia’s geopolitical position. Last year’s boom in large part came from eager car dealers from Kazakhstan who had been racing to fill their own lots before July 1, when higher duties on car imports went into effect in the Central Asian country as part of a trade union with Russia and Belarus,” said Gaganidze.

Michael Tokmazishvili, who’s the head of the macroeconomic division-budget office, in the Parliament of Georgia as well as the senior researcher at CASE-Transcaucasus, also agrees that Georgian export structure will mostly remain unchanged although a rise of export in agricultural products is expected. As he explains, the latter will depend on the reorganization of the field as well as the world price increase of agro-goods, for instance of nuts which is less likely.

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The prospect of FTAs with the EU and US — With Georgia’s perennial trade-deficit further exacerbated in 2011 (-4.9 billion USD up from 3.7 in 2010), there is the hope that prospective EU and US Free Trade Agreements will somewhat change the scenario and attract substantial foreign direct investments which will, in part, increase the exports.

As Giorgi Gaganidze notes, EU and US free trade agreements should be discussed as a stimulus not for traditional export items but for new, innovative products and services. At the same time, such agreements will drive FDI into Georgia due to low labour costs and good tax and in general economic environment.

On the other hand, Tokmazishvili doesn’t consider foreign direct investments to drive up exports in the EU all at once.

As he said the main problem is not tariff barriers with the EU but it’s the lack of technological improvements and standards which Georgia has to satisfy. “The latter, per se, will have a tremendous effect and be a stumbling block for exports in the short term,” noted Tokmazishvili.

“We have similar problems with the US. An additional challenge is the high cost of transportation infrastructure (the same with the EU). On these markets, which are huge in terms of size, there is a tendency to increase the exports of mineral waters and alcoholic drinks,” said Tokmazishvili.

Inflation Risks from the Outside — Turkey, which has remained Georgia’s number one trading partner for years, is now experiencing almost double-digit inflation. Throughout 2011 prices had been increasing on food, clothing and on various other consumer products which will automatically have an impact on Turkey-imported products in Georgia.

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Experts have varying views on the question albeit price hikes are still expected, at least in the short run due to huge amounts, namely 1.3 billion USD imports from Turkey.

“We shouldn’t discuss inflation separately from currency exchange rates. Interaction between the two determines changes in the country’s export prices (in this case Turkey’s). If prices of Turkish products will rise, they won’t have a competitive edge thus will be substituted by either local, cheaper products or ones imported from other countries (in Georgia).



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