Miscellaneous Economic crisis in the country’s investment system and its influence on the development of construction industry (ABSTRACT)

Khatuna Arabuli

In the early 90s, the country’s socio-economic problems required consecutive reforms of government bodies, yet due to a number of reasons an accelerated dismantling of the existing economic system which resulted in degradation of production and socio-economic crisis.

As a result of disintegration the centralized finance system, the finance mechanism has been completely ruined, as there was no organized finance and credit market to financially meet the demand of construction companies for material and technical resources. Hence, construction industry proved to remain without material resources. The problem has become even more exacerbated due to the fact that the potential of the country’s building materials and construction industry could not balance the demand of building complexes for resources. Consequently, because of the lack of resources a growing number of uncompleted construction works in the country led to the increase of money supply in commodity and currency circulation with the money supply being non-balanced with goods of investment complex.
At this stage, it should be mentioned that the country’s most important socio-economic problem is provision of jobs by way of restoring domestic production, which is unimaginable without attracting investments.
It would be fair to mention that from the viewpoint of market growth most Georgian businesses are on the initial stage of development. Such businesses are mainly financed through venture capital that is provided by financial investors through direct investments. Financial investors take decision about investing money by relying on such characteristics as transparency of company’s business, flexibility in coping with negative trends, management qualification level and business strategy. Besides, there is another strategic form of venture capital investment when financially strong companies act as investors.
As for state role in investments, the main problem is a choice of priority directions for allocation of direct investments and limited state investment resources as well as choice of comparatively effective forms for making investments. Besides, at this stage it would be more advisable to establish a state fund that after achieving a particular efficiency level would provide companies with the warrant for purchasing their share holding. On the one hand, this will reduce the risk of inefficient use of state funds and, on the other hand, increase investor’s trust.
Principal indicators of economic crisis in the country are those of labour productivity and material production. The fact is that it is impossible to achieve economic stability without stopping the downturn of the indicators and providing their further increase. State regulation is needed for solving the factors. State regulation should not be implemented by direct, but rather by indirect methods: it is necessary to encourage domestic private investments, as they are grounds for investment process in the country. In developed countries governments care for attracting population’s savings to money corporations and creating normal conditions to include the savings in economic turnover.
Therefore, strengthening of national currency and putting into effect warranty mechanism (including state) of population’s bank deposits is a fundamental factor for the growth of investment activity in domestic economy.