The FINANCIAL — Georgia battling with economic slowdown meanwhile business and property registration is on the rise again. Despite the economic slowdown in Georgia, the number of registered real estate transactions increased by 30.9 percent in April 2013. Business registration has improved but foreign direct investment (FDI) is still at the worst level since the world financial crisis. International experts suggest that the Government makes some big decisions as investors are waiting to see more action in the country before proceeding.
The business registration index level in April was 1.083.
The number of registered business entities in Georgia in April 2013 reached 4,739, of which 96.4 percent were individual entrepreneurs and 3.6 percent – for-profit entities. However, the number of for-profit entities had decreased by 9.5 percent. The business registration level index according to registered business entities and for-profit entities was 1.075 and 1.354 respectively, statistics show.
A slowdown of Georgia’s economy was recently reported by National Bank of Georgia. The European Bank for Reconstruction and Development (EBRD) has cut its 2013 growth forecasts for Georgia’s economy by two percentage points, saying the country’s “prospects have worsened relative” to its January forecast.
EBRD predicts Georgia’s economy will grow by 3% in 2013, instead of the 5% it forecast in January and well below the Georgian Government’s official forecast of 6%. On Georgia the report says that the country’s economic growth slowed down at the end of 2012, “likely due to lower investment and uncertainty related to post-election political transition”.
“With regard to economic growth 2012 was a good year; it was 6 percent of growth. But since then the growth has slow downed,” Bruno Balvanera, new Director of EBRD in the Caucasus, Moldova and Belarus, told The FINANCIAL.
“On the one hand Georgia’s key partners, Europe and Russia, have felt a slowdown and this is normal that Georgia has felt the same. On the other hand it is true also that change of government comes with a slowdown of the decision-making of investors. The Government is already communicating on solving this problem. However, it is not only a matter of communication, but of action. The investors are waiting to see more action. They are waiting for big decisions to be made in regard to different laws that are still under discussion in parliament; to see how the economic programme translates into different areas of priorities, to see whether the different funds that have been announced will be created. In general, the ranking of Georgia in all international rankings is very high. Georgia is the best student of our school, aiming to have the best diploma, the best grades,” he added.
The majority of registered business entities – 55.2 percent, were individual entrepreneurs, statistics provided by the Public Registry Service show. Their number reached 2,614 in April 2013. After individual entrepreneurs come limited liability companies with 1,932 entities and a 40.8 percent share. It seems that 69.0 percent of business entities prefer the current legal status, according to the statistics. 172 non-profit legal entities, 14 branches of foreign legal entities, 5 joint-stock companies, 1 cooperative and 1 joint responsibility society were registered in April 2013 in Georgia.
“A significant part of the current developments in the real economy can be directly attributed to expectations,” said Giorgi Mekerishvili, Research Fellow at ISET Policy Institute, conducting research and providing economic policy consulting. “As for the post-election developments, data suggests that there is an economic slowdown: since June 2012 the number of new businesses registered started falling maintaining the downward trend before the elections in October, taking off afterwards and reaching the pre-June 2012 level in April 2013; GDP growth rate fell to 6.1% in 2012 compared to the 7.2% of 2011; during 2012-2013 ISET-PI Consumer Confidence Index reached its peak in November, falling afterwards; during the 1st quarter of 2013 the real GDP growth rate was 1.7% (expected to decline further for the second quarter) which has been the lowest quarterly figure for the past 3 years; since July, electricity consumption and VAT payers’ turnover has fallen significantly; public spending and FDI have dropped since the elections,” he added.
“These estimates suggest that pre and post election expectations have been rather volatile, indicating risk and uncertainty and thus, negatively affecting investor decisions and causing economic slowdown. This process is perfectly in line with what we know about political “business cycles”: incumbent governments tend to overspend before elections and leave scarce public funds to the incoming government which then needs time to figure out spending strategies and other policy measures, spilling over uncertainties to the private sector, as well,” Mekerishvili added.
“On the other hand, besides internal factors, the Georgian economy is influenced by regional and global issues. After the global financial crises, among other regions, economic activity has slowed down in Eastern Europe and Central Asia – FDI and economic growth levels have fallen and are not expected to return to their pre-crisis levels in the near future. Of course, Georgia is also affected by the trend,” Mekerishvili said.
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