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64 Opinion
bne October 2019
The central bank’s position is that this is an exaggerated view and that overall debt in the economy (household debt to GDP is only at 17%) is manageable and the percentage of non- performing debt is only at 5%. Also, as of October, the central bank will introduce a new requirement for banks whereby they will have to more critically assess the financial position of clients, especially their ability to service debt, before extending any new loans. The expectation is that this will cut the annual rate of retail lending growth from 22-23% to 15-16%.
The third major debate is over national projects. The Audit Chamber has reported that only 32.5% of the full year aggregate allocation to the projects had been spent in the first half of 2019 and only three of the projects reported spending over 40% of the full-year total. This will undoubtedly lead to demands from the presidential administration to accelerate spending later this year and in early 2020. But the fact that spending is starting only slowly should neither be a surprise
nor a cause for concern. This is a major change of direction for the economy and is huge in scale. All such projects start slowly and take longer to deliver the expected results. This is normal. Forcing a pick-up in the pace risks a loss of efficiency, misspent funds and a failure to deliver the results.
The good news is that monetary flexibility and fiscal discipline in recent years, plus the relatively high average oil price, mean that Russia is in a strong and stable financial position. The critical question now, and the subject of the policy debates,
is how to convert financial strength into growth and, just as crucially, into a recovery in public trust in the government.
Chris Weafer is a founding partner of Macro-Advisory, which helps investors cut though the noise and focus on underlying trends, real political risks, and opportunities in Russia/CIS, the Eurasia Union, and Mongolia. Follow him on @ChrisWeafer.
Putting concerns about Georgian FDI in context
Eurasianet
When a major infrastructure project ends, aggregate foreign investment can drop. That doesn’t mean the economy is heading south.
Flows of foreign direct investment into Georgia have fallen 54% in the first six months of 2019. This has made an attention-grabbing headline for several news outlets covering economic developments in the South Caucasus. But the stark drop in FDI does not mean Georgia’s economy is tanking.
Georgia’s attractiveness as an investment destination was given a huge boost by the series of radical economic reforms that followed 2003’s Rose Revolution. Over the next few years, Tbilisi improved the ease of doing business with tax reforms, deregulation, public sector reforms and privatization. What followed was a massive increase in foreign investment: FDI averaged less than $250mn between 2000 and 2004; in 2006 FDI jumped to $1.2bn. Between 2006 and 2018 FDI averaged more than $1.3bn every year.
A considerable share of the FDI over the past decade has come from Azerbaijan: investments in the pipeline infrastructure to export Azerbaijani oil and natural gas to the West.
Foreign investors have not suddenly decided that Georgia is unappealing. Instead, the drop can be attributed in part to the completion of the Trans Anatolian Natural Gas Pipeline (TANAP),
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the end to expansion efforts on the South Caucasus gas pipeline, and the completion of other foreign-funded infrastructure projects such as the Baku-Tbilisi-Kars railway. According to Georgia’s investment promotion agency, TANAP brought $2bn to the country in the mid-2010s. It should not come as a surprise that FDI dropped sharply when the pipeline was completed.
Despite domestic political upheavals and tensions with neighbouring Russia, Georgia’s economic story has been one of unabashed success in recent years, far out-performing its neighbours.
FDI in Georgia (in $ million)
National Statistics Office of Georgia