The FINANCIAL — The rent index together with the groceries index in Georgia has become worse since the year 2012. The statistical data of the world’s leading database – numbeo.com, has shown that the cost of rent and groceries has increased while at the same time consumer price index, consumer price plus rent index, groceries index and restaurant price index have decreased. This means that rent and groceries have become more expensive, but the cost of the consumption of other everyday goods has decreased.
The human development index (HDI) has been improving since 2012 as it increased by 0.5. HDI is a composite statistic of life expectancy, education, and income indices used to rank countries into four tiers of human development.
Numbeo is one of the world’s largest databases of user-contributed data about cities and countries worldwide. Numbeo provides current and timely information on world living conditions including costs of living, housing indicators, healthcare, traffic, crime and pollution.
According to the consulting company Mercer, in 2012 the lowest-ranking European city was Tbilisi, Georgia (213) in terms of the ranking of quality of life worldwide.
The quality of life index of Tbilisi as of July 2013 is estimated at 13.66. The index incorporates purchasing power index, safety index, healthcare index, consumer price index, property price to income ratio, traffic commute time index and pollution index. Tbilisi has the highest ranking in the region. The quality of life index in Baku is -5.45; in Moscow -14.93 and in Yerevan 6.83.
“People’s wellbeing is one of the things that mankind troubles itself about the most,” said Eka Gegeshidze, Full Professor, School of Economics, Business and Management at The University of Georgia. “Politicians, economists as well as simple citizens are all looking for a better life. Many things have happened in Georgia during the last year, some of them good, some bad, some better or worse. The country’s economy is very complicated and economic reactions to certain circumstances are unpredictable; one can predict a direction that the economy will go in, but one can never be sure what kind of results there will be as politicians are often doing things which are good for politics but bad for the economy,” said Gegeshidze.
“How are we living in Georgia? A politician from the ruling party would answer: ‘we are doing the best for our citizens’; while the opposition would always cite proof that things are getting worse. An economist would say that we are living better than in Uzbekistan, much worse than in South Africa, but twice less than someone from a developed country,” said Eka Gegeshidze.
Gegeshidze took a closer look at the economy to find clearer answers to our questions. “If we look at real GDP according to sectors we find that there is a significant decrease in private households employing domestic staff and undifferentiated production activities of households for own use by 6.4% and construction by 10% (table #2). Construction in Georgia was one of the largest industry groups with 9% of total GDP and the decrease of that sector is causing income generating problems if we compare only employment from Quarter I 2012, to Quarter II 2013; the number of employed persons decreased from 46,982 to 40,863.”
“Regardless of the black spots there are some light spots in the Georgian economy: agriculture, hunting and forestry; fishing has increased by 7%; mining and quarrying by 6%; manufacturing by 5%; wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods by 7%; other community, social and personal service activities by 4% (table #2),” Gegeshidze explained.
Gegeshidze showed that the Georgian economy is shifting from one equilibrium to another, last year the equilibrium was construction density shifting to agriculture and community, social and personal service density and that kind of change is what’s responsible for economic shocks in a short period of time.
In her words, Georgia has other problems which are much bigger than those shown above. “These are interest rate problems and deflation. According to the latest information, inflation varied from deflation 1% to inflation 1%, at the same time the national bank and finance ministry created targeted steps to increase inflation, but inflation is not increasing. You would think that inflation not being high is definitely a good thing, but that is not the case; when inflation is less than the target level of inflation it is very bad for business, because the nominal interest which is forming is the sum of the real interest rate and inflation. If business is borrowing money with an interest rate of 12% and target inflation is 9% they are expecting to pay 3% real interest, but because inflation is 1% of deflation that means business is paying 12%+1% which equals 13%, and thus business operation is becoming less and less effective and borrowing is at the same time less useful. Such a situation would lead us to say that a liquidity trap could be beginning in the country.”
“At the same time we can observe that there is very big interest from foreign investors. They can easily do things which Georgians cannot afford to, the answer to which is very simple – they can borrow money in their country cheaper than here in Georgia. Proof of that is increased rent rate in the country. That foreign direct investment is seen as treatment for the economy, but at the same time poverty could be becoming worse, because capital assets will be owned by foreign citizens, but as soon as investments increase, so will employment, and then the country’s population can live better. Also there is a very hopeful perspective, which is selling agrarian goods in Russia. We have not yet received the results of that decision, which could potentially increase the Georgian economy by 10%,” Gegeshidze said.
“In summary, what Georgians can do for a better life is this: be active citizens, work hard and stay awake, we can and should live better, and if we all work towards this we can achieve it,” Gegeshidze told The FINANCIAL.
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