The FINANCIAL — Tbilisi, Georgia could be considered one of the most expensive cities to live in, taking into account the wages people receive here in correspondence to living costs. The cost of living is in some fields similar, if not more expensive, than in some European countries, while the wages are lower making it more expensive to live. Meanwhile Tbilisi is no longer a paradise for foreigners with a monthly income of 2,000 USD.
Prices are quite high for services such as internet usage, car rental, accommodation, as well as consumer non-durable goods. The main reasons for the high prices are the negative trade balance of Georgia, monopolistic prices, small market, low competition and high rate of import, according to experts interviewed by The FINANCIAL.
“In Georgia practically all goods are at an international price level, the main reason for which is the negative trade balance of export-import. Moreover, if the economy is open and local prices of goods are exceeding world prices, it should be concluded that we are facing a monopolistic price mechanism,” said Tamaz Akubardia, Professor of Economics at Caucasus University.
According to a poll conducted by Travelsupermarket company, Tbilisi is the most expensive car hire destination in the world. In Tbilisi an individual can hire a car for 663.8 EUR for seven days, while in Dublin the price is only 76.9 EUR.
Moreover, by the tariffs charged for internet Georgia is among the most expensive countries in the world. In Georgia on average 5mb/second costs 17 USD, while in France 18 mb/second costs just 2 USD, Finland 22mb/second – 3 USD, the USA 5mb/second – 4 USD, and in Japan the price is most cheap at 61mb/second – 0.27 USD.
Renting a house in Berlin, Germany is approximately 1,000 EUR a month (for a 3-room apartment), while in Georgia an equivalent apartment would cost 1,500-2,000 EUR, however, a 1-room apartment in Berlin costs on average 250-300 EUR while in Tbilisi the price ranges from 200-300 USD.
You can rent a 4 star hotel room in EU countries for 100 EUR, which is impossible in Georgia.
“The housing costs in Tbilisi partly reflect a lack of knowledge by foreigners who have their rent paid for by companies, government or NGO. This creates artificially high rental costs. Vake and Vera districts are still the most popular areas for foreigners to rent apartments in, but Saburtalo is actually now on average a much cleaner, more convenient location and has better shopping,” said David Lee, President of the American Chamber of Commerce and General Director of Magticom.
Knut Gerber does not believe that living in Georgia is expensive compared to other, especially European, countries. He acknowledges however that comparing Georgian and EU standards would not give a clear picture. “If we compare Georgian and European standards on paper, then maybe you are right,” he replied.
Gerber described his present lifestyle and the demands and costs of it.
“The cost of renting a flat in Europe is higher, as I remember min. 30% of an average family’s income goes toward that only. The cost of daily food and restaurant dining is generally higher in Europe. In terms of petrol for one’s car, it is 1.4 EUR/l Super in Germany compared to 2.05 GEL/l in Georgia, but taking in to consideration the exchange rate between the currencies GEL and EUR, how can you compare? For the average working Georgian with a regular income these arguments are not fitting,” declared Gerber.
For a better comparison of prices between Georgian and European countries The FINANCIAL chose the example of Barcelona and Tbilisi price comparisons. The living costs of Barcelona are estimated by International Business School.
However, before discussing the prices it should be considered that the average salary for Barcelona jobs in the country is 46,000 USD (3,833 USD per month), while in Georgia the average income per month is 560 GEL (312 USD) according to the National Statistics Office of Georgia.
Dinner in a restaurant in Barcelona will cost you from 12-40 EUR (30-90 GEL) per person, while in Tbilisi the price is 40-70 GEL. A drink in a club/pub is between 6-10 EUR (14-23 GEL) in Barcelona, while in Georgia it is from 7 GEL and up. Cinema ticket prices are approximately the same, in Barcelona you need 7 EUR (16 GEL) while in Georgia it is from 8-12 GEL.
“The absolute level of prices in Georgia is not high, but if you compare the price relative to the wages of Georgians, life is actually quite expensive,” said Eric Livny, Executive Director at the International School of Economics at Tbilisi State University (ISET).
Eric Livny, born in St.Petersburg, grew up in Israel. He studied economics, political philosophy and Russian history.
“Prices are relative low for services in Georgia. For instance, getting a haircut, cup or coffee or hiring a babysitter does not cost much. However, prices are a bit more expensive for goods most of which are imported thus to buy a computer one pays more in Georgia compared to London, Paris or New York,” said Livny.
For example, Apple computers and smart-phones in Tbilisi cost 20% more than in EU countries or in the United States.
The prices of groceries are similar, a 2 litre bottle of water in Barcelona costs 0.45 EUR (1 GEL), while the price in Tbilisi is 2 GEL. The price of bread is between 0.4-0.7 EUR (0.9-1.6 GEL), while in Tbilisi on average it is 0.8 GEL. The price of tomatoes (1 kg) is 1.2 EUR (3 GEL), while in Tbilisi the price varies from 2-4 GEL depending on the season. The price of apples (1 kg) is 1.3 EUR while in Tbilisi it ranges from 2-6 GEL.
“Prices are high in Georgia due to the fact that the country is a net importer of almost all goods and very often has an artificial price level,” said Knut Gerber.
“1 kg of Georgian apples in a shop costs 2-4 GEL. On an international fruit market the competition is extremely high as new competitors from Poland, Hungary, Italy and overseas have all entered European markets. So prices are decreasing further and further, i.e. prices for ripe fruit for juicing are less than 4 Eurocent/kg, not covering the costs for producers. Do we have the same competition in our market?” asked Gerber.
Lee declares that the main reason for the high prices is that Georgia now grows so little of its own food, and costs reflect the transport costs of importation. He believes the development of an agricultural strategy for Georgia is urgently required.
Livny, from ISET, believes that the main reason prices for imported goods are high in Georgia is small market, even China’s goods are more expensive in Georgia compared to Latin countries.
“The Georgian market is wide open and unregulated. For instance, when talking about imported electronics, there are no barriers to entry, anybody can bring in anything he/she wants, there are no monopolies to blame, no government to blame. Customs, tariffs are zero and VAT only 18%,” said Livny.
“In Georgia there is a very strong seasonal effect, in high summer heaps of watermelons and tomatoes flood the market and prices are very low. However, prices for the same items are very high when they are out of season. That can be explained by the fact that Georgia does not have large scale industrial production of agricultural goods. There are not many high technology green houses in Georgia. Georgia imports tomatoes grown in Turkey in winter, fall and spring which are more expensive than if Georgia had its own capacity to produce in an industrial way,” said Livny.
Akubardia believes that the increase of prices of local fruits and vegetables can be explained by bad climate conditions and secondly, the occupation of 120 villages by Russians which also played a role.
“There are several reasons I can cite for the increased prices in Georgia. Firstly it is unjustifiable to operate a speculator price mechanism in regards to fuel. There are monopolistic prices in Georgia. An increase in fuel price causes a general increase in price level. Moreover, a decrease of 25-30% of export from Russia and Ukraine caused an increase in the price of bread. Thirdly the price increase of buckwheat in Russia caused an increase of prices of all types of grouts in Georgia,” declared Akubardia.
“I think one thing that probably hurts Georgian agriculture is the free trade agreement with Turkey. Georgians are unable to protect their market from Turkish products. In a way it’s good for consumers because if the market was protected the prices would have been even higher in the short run. However, after a period of protection, say within 3-5 years, Georgia would have so much of its own production that would not need protection any more. It would be able to produce at lower prices than Turkey, which would be next consumers and create jobs in Georgia especially in the rural areas,” Livny added.
The use of public transport is cheaper in Tbilisi compared to in Barcelona, for a single metro ticket in Barcelona you need 1.4 EUR (3.22 GEL) while in Tbilisi you can travel for 0.4 GEL. A 10 minute taxi ride costs 7 EUR (16 GEL), while in Tbilisi it is approximately 5-7 GEL. Tobacco price is also lower compared to in Barcelona where you pay 3.6 EUR per package, while in Georgia you pay only 2 GEL.
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