How Georgian government deals with unemployment
Maka Ganiashvili
As a result of global crisis and recession, nowadays there are many economical problems in Georgia and not only in our country.
Consequently, it is not surprising that in our country and in the whole world the first-priority directions are economical growth and creating of additional working places. The article covers the main issues such as the consequences of world financial crisis and its influence on Georgian economy; the investment flows; Georgia’s export potential and the plans of newly established Export encouragement department in ward of Ministry of Economic Development. These and other issues are being discussed in an interview with Minister of Economic Development of Georgia Lasha Jvania.
– Mr. Lasha, allow me to begin with general issues and briefly discuss the action plan assigned to every ministry by prime minister on recent cabinet meeting. Please acquaint us with the main sphere of activity and priorities of the Ministry of Economic Development this year.
– World economic and financial recession, generally expressed in credit crisis, endangers many economical fields. First of all, this is construction field, besides this, trade overturn decreases on various types of commodities due to reduced crediting. Consequently, in large and small companies redundancy takes place. All the abovementioned is directly reflected in overall country’s economy and on individual income of separate persons as well. Moreover, there are few people in Georgia who can provide a family with own income and against this background, the loss of job becomes even hard and dramatic matter for many families in Georgia. Therefore, activities directed towards economical growth and development first of all serve the task of creating additional working places in the country. It is essential to maximally maintain unemployment balance and create jobs, in order to ensure that people living in our country have deserved income.
In addition, export is being jeopardized as well. There is nothing to boast about export, as Georgia’s trade negative balance is 3 billion GEL. This is a sign that we are a consuming, but not a producing nation. Naturally this reflects in economy and unemployment issue as well. However, we possess potential for development and entering the local market, especially in the field of agriculture. Moreover, agriculture is not the only field to be developed in Georgia; there are other fields of strategic meaning. For instance, intellectual potential needs to be realized in Georgia, exporting the last one is especially important for the country, which does not possess such natural resources as oil and gas. Georgia is small country we might not create huge enterprises covering various markets in the world, we might not create multinational corporations. However, we have other resources like intellectual one, potential of entering the local market as well and others that need to be realized. When talking about export, it is worth of mentioning that we have very good preferential system – GSP+ toward countries such as European Union member countries, Norway, Switzerland, USA, Canada and Japan. In the markets of the mentioned countries, 7200 commodities are under preferential system, or in other words simplified customs regime. This ensures competitiveness of our product prices towards the product of other countries. Of course, this advantage needs to be realized for export development.
– GSP+ refers to tariff barriers only, but there are stricter requirements in European Union market. For instance, some non-tariff barriers concerning quality of production.
– That is true. Apart from tariff barriers, these countries have strict requirements and nontariff regulations. This means that our production must meet the quality standards and requirements. It should be competitive not only by price, but by quality also. In connection with this, it is very important to take care of foodstuff security. This is European Union’s demand too and if we want to enter European market, production safety and quality must meet European standards. It is necessary to establish laboratories, which will have the right conceded by international standards to grant certificates of conformity proving the quality of the product. With the quality certificates granted by this laboratory, product can be exported on European and other markets. We are working in this direction together with EU and we hope that at the end of the year we will complete establishing the laboratory granting the corresponding quality certificates. By 2010, we will be ready to ensure that those manufacturers who wish to export own products received quality certificates conforming to international standards.
– What can you tell us about other priorities of Ministry’s action plan?
– It is quite important for me to do my best for reestablishing antimonopoly service in Georgia. I pay great deal of attention to this matter and this is one of the priorities of our ministry. Besides this, we understand that antimonopoly service is considered as an origin of corruption mechanism. Corruptive mechanisms were presented in the previous antimonopoly legislation in Georgia. However, corruption is presented in any apparatus and state mechanism. Therefore, corruption element is not and it should not be an obstacle for me in the plans of reestablishing the mentioned service. Barely, it is essential to have precisely assigned and regulated obligations and authorities. In case of elaborating proper control mechanisms, I am sure that antimonopoly service will yield its results. All this can be developed by cooperation and work with the legislators. I reckon that present parliament has the potential for active discussions on antimonopoly service reestablishment. However, in this case the question is do we have a political will of doing this? First, I will present my opinion and priorities to the government that on its part will discuss and decide the currency of this matter. I am deeply sure – in terms of adopting good legislation and consequently proper normative acts, we will receive actually effective service far from corruption.
– What is the guarantee that new antimonopoly service will not be a source of corruption in the country?
– As I already mentioned well-assigned regulation concerning the antimonopoly service rights. The previous antimonopoly service had entitlement to everything. It was allowed to do anything. Therefore, it is essential to define the framework of antimonopoly service strictly and its rights and obligations. It should not be able to act outside this framework, as in case of strictly regulated work corruption is ruled out. Moreover, the personnel working in this department should be highly motivated; I mean salary and financial motivation. In addition, other mechanisms for controlling antimonopoly service should exist in the country. In contrast to Statistics Department, which from my point of view should be absolutely independent organ, I reckon that antimonopoly service can be under the control of Ministry of Economic Development. As it is a matter of state interest to control the market and eliminate monopolies in it. However, monopoly is created by market and state’s role and influence here is rather small. However, it is inadmissible to have monopoly in the fields of strategic meaning. The obligation of antimonopoly service is to be in charge of this.
– Allow me to return to export issue and discuss the specific planned activities in this direction.
– Encouraging export is very important. It is not a surprise for everybody that export will suffer damage in 2009. Our task is to do our best to avoid this by creating new enterprises and implementing innovations such as cheap credit program in agriculture field.
– Is cheap credit program applying only to agriculture field?
– The major part will be spent on agriculture development, but the program is not limited only to this. We should see to creating processing factories and enterprises that produce highly demanded new products from agricultural raw materials. These products include jam, juice etc. We must not be oriented only on primary agriculture products. We must not be limited on export of apples, nuts, tomatoes, cucumbers etc but also we should try to produce other products from agricultural ones.
Processing industry has its additional advantages of course. When one possesses processing factories and creates products, naturally there is a demand on agricultural products that on its part means that farmers and peasants are busy in the villages. Furthermore, one needs technologist, besides this when entering export market the product needs to be packed. This creates new working places and that is very important. All these things are connected like a chain reaction. This is how economy works and establishes as a unique mechanism. Therefore, we have the priority and the money credited within the framework of “cheap credit program” will be mainly directed on the development of processing industry.
– What amount is assigned for cheap credit program?
– 20 million GEL is assigned for one year. Of course, this is very small amount, but this is just the beginning. Last year initially was assigned 20 million GEL but afterwards this sum increased. This likely to happen this year too. For instance by additional funds received from privatization or from part of the funds gained from residences sold by the president’s initiative.
– What are the functions of newly established export department in the ministry?
– What is the aim of the department encouraging export? There is a lack of information between our farmers and entrepreneurs, especially in the regions. This is naturally connected with low internet consuming level in our country. Besides this, there is a communication problem or the language barrier. Russian market is closed for us; therefore, our entrepreneurs need to know foreign languages in order to find potential partners and establish relations with them, in the countries where the GSP+ preferential system is active. At this stage, state should bear assistant’s functions or it should provide information concerning potential markets to our farmers. Moreover, in case of interest and demand state should help them in establishing contact. Therefore, it is necessary to create department that will work not only on theoretical matters, but will directly help entrepreneurs also.
At the initial stage department consists of seven employees and it is planned to increase the number in the future, depending on the demand and interest in this department. I am sure that in the future there will be great demand not only for widening of the department, but for establishing it as a separate structure also. In case of entrepreneurs activity the export encouraging institute must be staffed by entrepreneurs and the state. As in this case, state and entrepreneurs are equally interested parties. State has the tentacles, “additional hands” in international markets in the capacity of embassies and various representative institutions that can be used for information gathering.
– I suppose this information database will be free for entrepreneurs.
– Until it exists as the department of Ministry of Economic development, naturally its services will be free for entrepreneurs. Thereafter, when it will be transformed into independent institution and to my mind this will be export encouraging agency as the public law legal entity, which will be able to cooperate with entrepreneurs on commercial matters. In this case, export encouraging agency will be staffed by entrepreneurs.
– While establishing the mentioned department have you used analog experience of some countries?
– Of course, almost every western European country has the similar structure, but it is especially well established in Estonia. Israel has big experience also, it is a small state but despite that, it is an exporter country. As compared to Georgia, it has three times less territory, 60% of which is a desert. Notwithstanding it not only satisfies it demand, but exports agricultural products as well. I am not inventing some mechanism or bicycle; I just want to establish here already existing experience of other countries. All this requires state support. Hard work is most important.
– Department of contract liabilities is being established in the Ministry of Economic development. What can you tell us about this?
– Establishing this department was essential and it comes from the current reality. In the past only two employees were monitoring contract liabilities performance. In order to develop economy and attract funds it is essential to have contract performance monitoring institute that reminds the investors that they should pay own liabilities. Generally, controlling such processes and ensuring that state receives the funds from the investors in a timely manner is specifically our ministry’s and the state’s obligation. If we do not do this, we should be punished for that.
– In case if investor breaks the terms what will be the chastisement mechanisms?
– These conditions are stated in the contracts and in Georgian legislation as well. However, we haven’t established monitoring department as some chastisement organization. First of all, monitoring department should encourage investments and protect state’s interests. Many investors might be unable to fulfill the obligations timely for some independent reasons. For instance, due to force majeure situations created because of Russian military aggression and economical crisis many banks are not able to credit. In addition, there are some object circumstances and reasons for investors are not able to fulfill their obligations. Therefore, special committee is being established in the ministry that examines all the factors and consequently may give some term extensions to the investors and help them somehow. However, at the same time, it is very important state to receive those taxes that are expected in 2009. Otherwise, budget incomes decrease and our economy won’t receive additional injections.
– Mr. Lasha, we started an interview with the discussion on this theme and in the end allow me to ask you once again. What specific steps are made and what project implementation is planned in the country in order to create additional working places?
– Attracting investment is the specific program and the huge priority that creates additional working places in the country. This is essential as imagine that 1 million investments mean 50 working places. Accordingly, the more millions we attract the more people become employed. This is our global plan of support. On the second place there are infrastructural projects implemented by the state, for instance road construction, irrigation works etc. Inter alia, irrigation problem solution is very important for the country. If we provide peasants with only tractors and saltpeter and they will not have irrigation system on their plot, everything will be done in vain. Therefore, 160 million GEL is assigned for irrigation works. State will provide irrigation system for many plots and that is very important for the peasants.