ISET Economist Blog

A blog about economics in the South Caucasus.
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Desertification in Kakheti – a Threat to Kakhetian Agriculture?
Kakheti is one Georgian region that is economically dependent on agriculture. According to data from the Agriculture and Rural Development Strategy 2021-2027, 40.1% of Georgia’s agricultural lands are within Kakheti, where its largest areas are arable lands, pastures, and vineyards, making it the leading region in the production of cereals, livestock, and wine. In 2020, wine production in Kakheti alone accounted for 75.5% of all the wine produced throughout the country.
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Namakhvani HPP – Threat or Opportunity?
In recent months, the Namakhvani hydro power plant has become one of the most discussed topics in Georgian society.
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COVID-19 – A Threat but Also an Opportunity for More Decisive Actions Against Climate Change
Covid-19 has exposed many countries to severe healthcare and economic crises, which have disproportionally adversely affected the most vulnerable and low-income parts of society. The current pandemic crisis, however, has also brought some interesting opportunities to light. For example, it has shown that relatively quick change is possible, as the unfolding of the COVID pandemic led to significant changes in working practices and individual behaviors, leading to dramatic reductions in greenhouse emissions around the world. Building on these experiences, adopting a scientific approach and careful planning, it should be possible to develop more efficient measures to adapt to and mitigate climate change. The financial assistance and debt service relief that developing countries have been receiving from the developed world to help them provide economic stimuli to their economies also constitutes  an interesting opportunity to accelerate in pursuit of a sustainable development path, if these countries choose to invest these resources to boost the economy and support climate change action at the same time. It is especially important to keep this balance since the predicted temperature rise as a result of accumulated greenhouse gasses from amplified economic activities will negatively affect the sectors1 which primarily employ the poorest part of the world population. Consequently, further impoverishment of these communities will prevent achieving at least one of the United Nations’ (UN) Sustainable Development Goals (SDGs): no poverty in the world. WHAT ABOUT GEORGIA? Despite its initial success in containing the spread of the pandemic, Georgia is not an exception. Rising infection and death rates and increasing unemployment2 and poverty rates3, forced the Georgian authorities to direct their financial and human resources to life-saving sectors, such as healthcare and social assistance. Simultaneously, companies in the most affected sectors (tourism and services), have been given tax benefits and extensions of loan terms. Given the increased pressure on the government budget, financial resources that could be used for climate change mitigation and adaptation activities are now more limited and climate change risks occupy a much smaller space on the government agenda4, despite the country’s international commitments remaining unchanged. On the mitigation side, the country has to comply with its commitments to reduce long-term greenhouse gas emissions. In 2020, Georgia published an updated nationally determined contribution (NDC) to UNFCCC5, where the country once more took on an obligation to reduce its greenhouse gas emissions by 35% compared to the 1990 level6 and achieve sector-specific targets for energy, agriculture and LULUCF7 sectors. On the adaptation side, Georgia has already taken the responsibility in the third national communication document to UNFCCC to elaborate a 2020-2050 strategy which considers the development of National Adaptation Programs of Action (NAPA) and sector-specific adaptation strategies in the agriculture, health, and tourism sectors. Even though the adaptation plan was already elaborated for the agriculture sector in 2017, the actions defined in the document have not been fully implemented. In Georgia the pandemic has strongly affected the energy sector, especially fuel combustion activities, which contribute 81% of total energy emissions. In particular, the immediate impact of the pandemic was a sharp cut in emissions from the energy industry, transport, and the commercial sector due to reduced economic activities, restricted mobility as a result of home officing, and declined air flights. Despite the apparent short-run positive impacts of the pandemic on climate change mitigation, the long-term implications remain unpredictable. It is likely that soon after the introduction of effective vaccines against the virus, partially revived air and road transport mobility due to the gradual opening of the tourism sector and reduction in home officing will lead to a gradual increase in greenhouse gas emissions in the atmosphere. The effect of the pandemic on greenhouse gas emissions from agriculture and LULUCF in Georgia also remain uncertain, both in the short and the long term. Since, according to GeoStat data, during the Covid-19 period, there was first an increase (in the second quarter of the year) and then a decrease (in the third quarter of the year) in the ownership of cattle and livestock, the short-term net emission levels derived from enteric fermentation in the animals’ bodies cannot be clearly measured. At a more general level, as the planned state budget for 2020 and the projected budget for 2021 consider increased expenditures for the agriculture sector as well for the conservation of biodiversity, the net greenhouse gas contribution of agriculture and LULUCF is hard to define. The potential post-crisis expansion of economic activities in agriculture and the increased resources towards conservation will impact emissions derived from agricultural processes8 as well as LULUCF-driven carbon removals9, with an uncertain net effect. While the pandemic crisis has adversely affected the demand structure of the agricultural sector10 and accessibility to agricultural inputs, reducing farmers’ incomes and the potential for sustainable agriculture development, the anti-pandemic crisis plan introduced by the government has already included agro-industrial assistance to counteract these effects, including some climate change mitigation measures. Nevertheless, the proactive incentive schemes directed towards the popularization of climate-smart agriculture practices, including sustainable crop, grazing, and livestock management, still necessitate additional attention in order to mitigate the impacts of the agriculture sector on climate change. Georgia  also needs to continue planning adaptation measures in the agriculture, health, and tourism sectors. If the 2° C global temperature increase limit is not achieved by 2030, Georgia as other countries is likely to be hit by adverse weather changes and natural disasters, which can threaten the lives of people and their economic security. In this case, the country will face the problem of food security stemming from the vulnerability of the agriculture sector, as desertification can eliminate opportunities for agricultural production inside and outside the country. Furthermore, drastic climate changes can be expected to put vulnerable people (low-skilled workers and the poor) employed in the local agriculture sector in extremely severe financial and economic conditions. Moreover, the healthcare sector might face another wave of zoonotic diseases, as a result of massive forest fires and corresponding changes in wildlife habitats. Besides, the increase in air temperature, activation of heat waves and decrease of precipitation might lead to an increased incidence of cardiovascular diseases. Finally, the tourism sector can potentially be hit again by unexpected events such as unfavorable temperature changes, with dramatic effects on businesses and individuals employed in the sector. Even though the adaptation strategy of the agriculture sector has been elaborated and climate change documents have been created for some regions, the health and tourism sectors still necessitate proactive planning for climate change resilience building, even though the businesses in these sectors adopt some adaptation measures in uncoordinated ways. Given the ambiguous and undecided future of the national climate agenda in the aftermath of the current economic and health crisis, and the expected drastic consequences of climate change on the most vulnerable communities, sectors, and on society as a whole, there is clearly room (and need) for proactive policy decisions, both in the direction of mitigation and adaptation. In this process, the government, non-governmental organizations, and local communities could play a crucial role. Specifically, the government could incorporate the following adaptation and mitigation measures in the sector-specific anti-crisis plans developed so far: • Introduce policies incentivizing a quick transition to cleaner energy technologies; • Introduce incentive schemes for the use of more energy-efficient material in the construction sector; • Stimulate industry and manufacturing sectors via tax benefits to implement new technologies for more environmentally friendly production processes; • Encourage and subsidize sustainable eco-friendly regional tourism development; • Popularize public transport, support sustainable urban planning, and encourage development of suburbs and small cities; • Subsidize the healthcare sector to develop and/or adopt effective treatments against climate change-driven diseases; • Introduce state programs supporting the employment of climate smart agricultural practices like technologies for dry-land management and production, arranging drainage canals for redundant waters, rehabilitating pastures and taking other sustainable agrotechnical measures. Simultaneously, different non-governmental organizations and local communities could be actively involved in the following mitigation and adaptation activities: • Increase media coverage of climate change related issues and raise awareness in local communities around the severity of long-term consequences of the climate crisis; • Increase awareness of farmers via an online platform or regional workshops to employ climate-smart practices and technologies in agriculture production and forestry (sustainable land use and management); • Train the low-skilled and poor farmers and workers11 in agriculture and LULUCF in resilience activities to grow climate-resilient trees, irrigate  the arable lands more efficiently, arrange windbreak belts to decrease erosion, develop small-scale irrigation systems, plant drought-resistant crops and vegetables, and improve living conditions for pasture watering in the period of droughts; • Cooperate with the government and the authorities to envisage the inclusion of marginalized and disadvantaged groups of society12 in all strategically important policy plans, to create climate-resilient communities and avoid the impoverishment of individuals employed in climate susceptible sectors like agriculture; • Support the economic empowerment of women in rural areas, and their participation in sustainable agriculture production and in the adoption of climate-smart agriculture practices, helping them to apply for the state program – Enterprise Georgia – which offers preferential conditions for female entrepreneurs. To summarize, the Georgian government now has the opportunity to adopt a forward-looking approach, directing the resources accrued from international donors and banks to tackle the COVID-related economic crisis to the sectors in need, with a strong focus on sustainability and on the mitigation of potentially irreversible adverse consequences of the upcoming climate crisis. For this purpose, the government should target both the key sectors contributing to climate change and the sectors that are the most susceptible to it. The active involvement and participation of green non-governmental organizations and local communities in this process is of the highest importance to improve the effectiveness of policy enforcement and the achievement of the SDGs.  [1] Agriculture and forestry.[2] In the first and second quarter of 2020, unemployment was persistently increasing in urban areas compared to the previous periods, while in rural areas the first quarter represented a negative trend while in the second quarter there was a slight recovery in the employment indicator.[3] The number of social assistance beneficiaries in September 2020 was the historic maximum for Georgia over 7 years.[4] Even though the state budget consists of resources for environmental protection, is does not indicate separate resources particularly devoted to either climate change mitigation or adaptation measures.[5] United Nations Framework Convention on Climate Change.[6] 30,000 CO2 equivalent Gg.[7] Land use, Land-Use Change, and Forestry.[8] Enteric fermentation, manure management, agricultural soils and field burning of agricultural residues.[9] Forest, crop and grass land management.[10] According to the Georgian Farmers Association, 60% of surveyed farmers could not sell their products because the HoReCa (food service and hotel industries) sector is closed.[11] It is worth noting that by 2019 more than 38% of the labor force was employed in the agriculture, forestry, and fishing sector, whereas the contribution of the sector to the total gross domestic product remained at a low 7.4%. This fact indicates that the-low skilled and poor members of society are mostly employed in the sector. The income generated in the sector remains very low over years, while it is always distributed over a large number of agriculture workers. Consequently, climate=driven productivity decreases in the sector might cause impoverishment of those people who suffer the most.[12]The low-skilled workers and the poor. See our article usage guidelines
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The Implications of COVID-19 on the Georgian Power Market
The average cost of cooking one standard Imeretian Khachapuri varied across Georgian cities in November 2016, from 3.34 GEL, the minimum, observed in Batumi, to 3.55 GEL, the maximum, observed in Telavi. The average price was 3.46 GEL, which is 1.9% higher month-on-month (compared to October 2016). The Khachapuri Index is down up by 5.6% year-on-year (compared to November 2015), suggesting annual deflation as measured by the index.
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The Generation-Consumption Gap Keeps Increasing. What Could or Should Be Done About It?
Teimuraz Gogsadze, a graduate of ISET's Class of 2011, joined the International Taxation Division of the Tax Policy Department at the Ministry of Finance of Georgia in May 2011. He worked on such interesting projects as the double taxation avoidance agreement and agreements on mutual administrative assistance in customs matters, gaining invaluable experience at the Ministry of Finance. Having spent almost a year at the Ministry and inspired by the experience regarding taxation matters, Teimuraz decided to continue his studies with a PhD program. In April 2012, he joined the PhD program in Economics at the University of Leicester, where his supervisors were Professors Sanjit Dhami and Ali al-Nowaihi.
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Is Climate Change Threatening Winter Tourism in Georgia? – Part 2 – Adaptation Measures
Georgian winter resorts have finally started their long-awaited season in February 2020, after a