ISET

ISET Economist Blog

A blog about economics in the South Caucasus by ISET
Jan
14

How Can We Revitalize the Struggling Georgian Agricultural Sector?

LEFT BEHIND Between 1990 and 1994, the Georgian economy experienced one of the sharpest declines in economic activity in recent history, with GDP per capita falling by more than 70 percent. Since then, however, especially after 2003, it has been growing quite fast, with the Georgian GDP per capita overtaking the 1990 level in 2013. However, the Georgian agricultural sector, in the same period, has been characterized by a quite different trend, as shown in Figure 1. Figure 1. GDP Per Capita and Agriculture Value Added as a Share of GDP During the crisis ...
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Dec
24

How to Transform Georgian Agriculture – With Twitter

  Farmers can be much more effective if they have up-to-date information, on prices, practices and weather. With mobile phones and mobile Internet they can get this information when, where and how they need it. The promise of the Internet for agriculture has been a popular idea, and in Georgia, too, policymakers and donors have begun to explore the options. Some pilot projects seek to program specific platforms for farmers, in order to inform and engage them. What many of these attempts may have overlooked is that the best tool is already available...
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Dec
19

What Chile teaches Georgia

In 1991, the former finance minister of Chile, Alejandro Foxley, said in an interview: “We may not like the government that came before us. But they did many things right. We have inherited an economy that is an asset.” About twenty years before, General Augusto Pinochet had toppled the democratically elected President of Chile, Salvador Allende. Pinochet’s rule from 1973 to 1990 was characterized by severe violations of human rights, yet finally he agreed to hold a referendum on his political future, and when the Chilean people voted against him, he ste...
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Dec
17

Two Heads – One Public, One Private – Are Better Than One

Back in October 2015, a team of ISET researchers visited Charity House Catharsis to donate food on World Food Day, celebrated around the globe on October 16th. Catharsis was founded in 1990 and provides daily dinner to 310 elderly in need. Although the major function of the charity house is to provide food, Catharsis also offers other services like medical assistance, a relaxation room, chapel, rehabilitation hall, library and café. According to Elene Cucqiridze, one of the managers of Catharsis, the NGO a joint effort of government and the private secto...
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Dec
13

Is Georgia Heading towards an Oversupply of Hotels?

Citizens of Georgia’s capital recently witnessed the luxurious Biltmore Hotel Tbilisi grand opening. A $140 million investment by the Dhabi Group supplied the market with 214 luxury rooms and suits.  The $2 million opening, huge building and central location (right on Rustaveli Avenue) made the appearance of this hotel on the market very noticeable.  However, with much less lavish ceremonies, in total 37 hotels were opened in Georgia just this year, as reported by the Georgian National Tourism Agency (GNTA), which amounts to an additional 1,472...
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Dec
10

Georgia Needs Compact Government!

In recent years, a tendency on the part of different authorities to consolidate has been noted worldwide. Competition agencies are merging with consumer protection agencies and/or regulators in order to establish more effective and less expensive public systems. Accordingly, since the first roundtable meeting on the optimal design of a competition agency, held in February 2003, OECD has organized two more roundtables concerning changes in institutional design of competition authorities in less than one year – one in December 2014, and one in June 2015. A...
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Dec
05

When Good Intentions Lead to Bad Outcomes. Tree-Cutting Regulations in Tbilisi

“The road to hell is paved with good intentions”. Saint Bernard of Clairvaux As economic development progresses, air pollution and the lack of green spaces have become increasingly painful issues for Tbilisi citizens. In our previous blog, Breathing in Tbilisi, we discussed the negative outcomes – in terms of air pollution and tree-cutting – generated by the actions of self-interested developers facing an inert civil society and a local government that is unwilling and/or unable to protect green public spaces. While that is a classic example of market fa...
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Dec
03

The Textile Industry Stopping by in Georgia

My dad used to tell me stories about the exciting period when the Soviet Union’s economy started faltering and public resources were suddenly up for grabs in the chaos capitalism that emerged. While this period is usually associated with the appearance of crafty oligarchs, in Georgia also less wily businessmen could exploit the circumstances, among them many Turks. As the American journal The Tennessean wrote in 1977: “Soviet blue jeans may look like jeans, but that doesn't mean they are… One of the country's most exasperating problems is trying to satis...
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Nov
28

TUMORROW IS ALREADY HERE

Spending a big chunk of their precious summer vacation in Armenia was not exactly my kids’ dream. Their wish list included far more exotic destinations in Africa, the Far East and Europe’s leading capitals – Vienna, Paris or London. And, yet, it did not take too much convincing for them to go on a one-week trial at TUMO’s summer school for creativity in Yerevan. All I had to do was show a few pictures from TUMO’s website: What was supposed to be a one-week trial turned into a four-week immersion into the world of photography, 3D modeling and animation (...
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Nov
26

Professionals for Georgian Agriculture

  Recently, the ISET Economist Blog wrote about the cooperative “Shamatia.” Their strawberry seedlings started to fade soon after planting. The cooperative consulted with different experts in the country to find the reason, and the solution for the problem, without success. Only after sending sample seedlings abroad was the cause of the problem revealed. In the meantime, however, the cooperative experienced losses of 15,000 GEL. Such cases are not rare in Georgian agriculture. Recent value chain studies conducted by the ISET Policy Institute indica...
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Nov
21

Structural Transformation in Georgia – In the Right Direction at a Turtle’s Pace

  Structural transformation of the economy is one of the most important determinants of economic development. Almost invariably, nations that have managed to pull themselves out of poverty were able to diversify their economies away from low productivity sectors. In advanced countries, productivity differences between sectors are generally small, and growth mostly happens because of productivity improvements within sectors. Developing countries, on the other hand, are characterized by large productivity gaps between the sectors of their economies. ...
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Nov
19

Net Metering in Georgia. Getting Ready for the Next Energy Revolution

"We have this handy fusion reactor called the SUN. You don't have to do anything, it just works, shows up every day, produces ridiculous amounts of power." Elon Musk Introduction of Tesla Energy A few weeks ago Elon Musk (CEO of SpaceX and Tesla Motors and Chairman of SolarCity, among others) presented two new products: solar roof tiles produced by SolarCity, and Tesla’s Powerwall 2, designed to work together to revolutionize the concept of solar PV systems. Energy sector professionals, environmentalists, and renewable energy enthusiasts around the world...
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Nov
14

Georgian Haves and Have-Nots. Who’s to Blame and What to Do?

Just like the World Bank’s Doing Business, Transparency International’s Corruption Perceptions Index and many other international rankings, the European Bank for Reconstruction and Development’s (EBRD) Transition Reports have typically carried a very positive message for Georgia, Eastern Europe’s poster child of transition since the Rose Revolution of 2003. This year’s Transition Report, launched last week in Tbilisi by Alexander Plekhanov, EBRD’s Deputy Director of Research, is somewhat exceptional in this regard. Subtitled “Equal opportunities in an un...
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Nov
12

Thinking Forward through the Past

Under the Soviet system, farmers worked under strong central control; everyone knew what to do. Important economic decisions were not left to the market, or decided by self-interested individuals. Instead, the government, which owned or controlled much of the economy’s resources, decided what, when and how to produce. Along with providing necessary inputs, the state ensured that farmers had access to markets for their goods. After the collapse of the Soviet Union, state-provided coordination was abolished. The newly shaped market system brought a lot of ...
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Nov
07

“Friendship Bridge” – For or Against Gravitation?

The official visit of the Armenian President last week was concluded by a splashy announcement that the building of the “Friendship Bridge,” a new infrastructure project approved by the Georgian and Armenian Governments in late 2014, will start construction in 2017, and will be completed in under two years. The Georgian Prime Minister and the Armenian President have reportedly discussed a range of other opportunities to deepen economic and trade relationship between the two countries and support business community engagement in this process. This excitem...
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Nov
05

Lock, Stock and Two Smoking Barrels

“All the evidence shows that God was actually quite a gambler, and the universe is a great casino, where dice are thrown, and roulette wheels spin on every occasion. Over a large number of bets, the odds even out and we can make predictions; that's why casino owners are so rich. But over a very small number of rolls of the dice, the uncertainty principle is very important” – Stephen Hawking. Casinos, totalizators, and other gambling institutions are very popular in Georgia. According to the study “Gambling in Georgia – Second Report,” conducted by Transp...
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Oct
31

To Cut or Not to Cut? Shifting Government Priorities and the Uncertain Future of Georgian Agricultural Cooperatives

“I cannot see any use [for the cooperative I have set up] if I cannot find anywhere [someone] willing to lend us money” Spanish Priest – 1908 (Cited in Garrido, S. 20071) THE GEORGIAN AGRICULTURAL SECTOR AND THE POTENTIAL ROLE OF AGRICULTURAL COOPERATIVES The Republic of Georgia was among the fastest Former Soviet Union countries to implement a large scale land reform and land redistribution plan, starting in 1992. Land redistribution resulted in the formation of hundreds of thousands of small family farms, replacing large-scale collectives and productio...
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Oct
29

Georgian Agriculture: Beacon or Red Lantern?

A question of causality: Does modernization of agriculture lead to economic growth or does growth induce a modernization of the agricultural sector? For many years, this question has been hotly debated among development economists. While those economists who believe in growth-led agriculture (GLA) were dominating until recently, now the proponents of agriculture-led growth (ALG) are afloat again. Which insights does this debate yield for Georgia? THE TRADITIONAL VIEW For a long time, the question seemed to be settled. If one asked a development economist...
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Oct
24

The Shortest Road to Strawberry Field Isn’t Always the Sweetest, or Quickest

Nino Kvirkvelia and her husband Irakli Todua are not exactly your typical Georgian smallholders. Both spouses are well-educated (both hold economics and business degrees from reputable Georgian institutions). More importantly in the context of Georgian agriculture, the couple owns 28(!) hectare of arable land in Georgia’s horticultural heaven, Samegrelo, best known for its hazelnuts. This is a fantastic amount considering that the average size of agricultural plots in Georgia is only slightly above 1ha. A natural born entrepreneur, Irakli was among the f...
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Oct
22

Back to the Future: Will an Old Farming Practice Provide a Market Niche for Georgian Farmers?

Back in ancient times, the moon was the center of everybody’s attention. People worshipped the moon and believed that it had mystical powers. Since then, the lunar effect on human mood and behavior has been an issue for psychological and astrological research. Surprisingly, many economic papers are also concerned about the influence of the lunar phases on stock returns. Yuan et al. (2006) found that stock returns (defined as the change in the value of a stock market index) are higher during the new moon period than during the full moon period. This ...
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Oct
19

ISET Consumer Confidence: Anticipation Beats Realization

The CCI, which is computed by ISET-PI on a monthly basis, monitors how Georgians feel about their personal financial situations and the economic well-being of the whole country. Roughly speaking, the index is computed as the difference between the frequencies of positive and negative answers to 12 questions covering the present and expected economic situations of the households surveyed, as well as general economic parameters of the country, such as inflation and unemployment. It ranges from −100, a result that would follow if all respondents answered al...
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Oct
17

Khachapuri Index, Exchange Rate Dynamics and International Tourism

One glance at the ₾Khachapuri Index chart (for locals) tells the whole story of Georgian agriculture. Left to fend for themselves during the cold winter months, Georgian cows produce very little milk, sending dairy prices through the roof. Conversely, milk production peaks with the arrival of sunny weather and green fodders in early spring, leading to a collapse of milk prices. In the absence of large-scale industrial milk production (that does not depend as much on climate and weather conditions), the roller coaster image repeats itself, year in and yea...
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Oct
03

Breathing in Tbilisi

Tempelhofer Feld is a beloved communal recreation area of Berliners. Tempelhofer Feld is not just a park. It is a park built instead of an airport. In 2008, when the almost century old Tempelhofer airport was closed, the city of Berlin declared the centrally located, 386-hectare (!) open space for public use. Today, the area has a six-kilometer cycling, skating and jogging trail, a 2.5-hectare barbeque area, a dog-walking field covering around four hectares, and an enormous picnic area for visitors – everything we, Tbilisi citizens, can only dream of. Ju...
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Oct
03

On Predicting Election Results

  Forecasters, professionals and amateurs alike, all got it wrong. The Brexit came as a surprise because the bookmakers (people who organize bets on developments in politics, economics, and sports) reported that about three times more money was put on the event that Britain would stay in the EU than on its alternative. With poll results being inconclusive in the weeks before the referendum, this led many pundits to believe that Britain would stay in the EU. Also in the United States, the predictors were dramatically embarrassed when Donald Trump pr...
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Sep
27

Jobs for Life in Georgian Universities?

Few may have noticed an amendment to the Georgian Law on Higher Education, passed in December 2015, which potentially ushers in a new era for Georgia’s higher education system. As of January 2017, (some) Georgian professors and senior research staff will be appointed for an indefinite term (i.e. given "tenure"). Offered decent compensation and protected from political pressures and job insecurity, they will be able to indulge in academic endeavors, nurturing a new generation of Georgian academics and promoting Georgian science onto the global scene. This...
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Sep
26

Less Taxes = Higher Growth? Or not?

    Cutting taxes and achieving higher economic growth as a result is every politician’s dream. The 2016 parliamentary elections of Georgia showed just how important and controversial the question of taxation can become.  On the one hand, the Global Competitiveness Index Report that came out this month puts Georgia in the top 10 (9th place) among the countries with lowest tax rates. The current administration’s plans to abolish taxes on undistributed profit is likely to improve this ranking even more. On the other hand, many politicians a...
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Sep
20

ISET’s Consumer Confidence Index Shoots through the Roof

In September 2016, ISET’s Consumer Confidence Index added 13 points, the single largest monthly increase in the Index since its launch more than 4 years ago. Having risen from -28.7 to -15.7 points, the CCI rebounded to levels we have last observed about two years ago, in fall 2014 (i.e. at the outset of the GEL devaluation drama). Both the Expectations and Present Situation components of the CCI soared (up by 11.1 and 14.9 points, respectively), breaking historical records for monthly increases. On the one hand, the latest improvement in the CCI extends...
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Sep
19

What Do Politicians Promise Us: a Popular Guide to Political Platforms on Agriculture

“To win the people, always cook them some savory that pleases them.” ― Aristophanes, The Knights As the Election Day of October 8th approaches, we hear more and more about the platforms of Georgian political parties. Given that political competition is very fierce, one naturally expects to hear some blatantly populist statements – the kind of political promises (known to humanity from the times of Aristophanes) which are very popular among the voters, but are hard or impossible to implement in practice. Thus, for example, the reform of the tax syste...
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Sep
12

Do Teachers Respond to Incentives? Results of a Philanthropic Experiment in Sachkhere, Georgia

  What can bring the brightest among Georgian university graduates to the country’s public schools? While money alone may not do the trick, it is difficult to see a solution that does not represent a radical departure from the current remuneration system which places teachers – who hold the keys to Georgia’s future as a nation! – at the very bottom of the social ladder. Not only teachers remain the lowest paid category of Georgian workers but the gap between the annual average wage in education and other sectors of the economy has been widening over...
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Sep
12

To Bee or not to Bee?

  The economic significance of bees extends far beyond honey production. As the National Resource Defense Council writes in 2011 (“Why We Need Bees: Nature’s Tiny Workers Put Food on Our Tables”), the value of the honey that bees produced in the US in that year amounted to 150 million dollars, while the value of the harvested crops that were pollinated by bees was 15 billion dollars, i.e., greater by a factor of 100! Having bees around is not primarily beneficial for the beekeepers, but even more for anyone else who grows crops, fruits, or vegetable...
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