EBRD presents its annual transition report at ISET
Monday, 23 February, 2015

On February 18, the European Bank for Reconstruction and Development’s (EBRD) lead economist for Central Asia and Georgia, Agris Preimanis, delivered two presentations at ISET titled: 1) “Oil-driven Russia downturn adds to weakness in EBRD economies” and 2) “Innovation in Transition”. In both presentations, Mr. Preimanis paid attention to Georgia and showed its standing in the midst of current global economic challenges.

In the first presentation, Dr. Preimanis explained Russia’s ongoing economic situation and outlook in 2015, which is not promising at all: there is a slowdown of growth (-4.8%) and the collapsing of the Ruble (which lost almost half of its value in one year, January 2014 / January 2015).

This has been happening mainly because of the decline in oil prices globally and sanctions on Russia. “Georgia is not highly dependent on Russia’s economy, but [there is] still quite enough to consider,” Dr. Preimanis continued. Georgia has some exposure to Russia due to the fact that between 5-6% of its GDP comes from Russia (due to reduction of FDI flow, export and banking assets, and remittances). As for the currencies around the world, Georgia’s currency, the Lari, has been under pressure as well, but not as much as many other countries’ currencies, especially in the region. Considering all of these factors, Georgia’s growth is expected to be around 4% in 2015. As a recommendation for Georgia, to boost growth (in the long-run) in this difficult external environment, Dr. Preimanis had three suggestions: 1) to continue structural reforms and the AA/DCFTA implementation process; 2) to implement more targeted policies to attract FDI, and 3) to facilitate innovation in both high and low-tech sectors.

Finishing up the first presentation by outlining the importance of innovation for Georgia, he segued seamlessly into his second presentation, which was about the importance of innovation in transition countries. Unfortunately, Georgia stands very low in terms of several factors that contribute to innovation in the country. For instance, Research and Development (R&D) is very low. In order to eradicate Georgia’s low productivity, Dr. Preimanis outlined three phases it needs to “Adopt, Adapt, and Advance”. First Georgia needs to adopt technology, which is common for the transition country; then it needs to adapt that technology; finally, it should begin to create its own products. During the adopting/adapting phase, the government should: a) tackle general barriers like corruption, lack of skilled labor, red tape, and limited access to finance; b) help firms access international technology and value chains; c) promote smart specialization. Mature innovators need to: a) encourage more highly specialized human capital; b) work on key aspects of the business environment, e.g. taxes; c) ensure competition in banking; d) facilitate access to value chains and private equity for young start-up firms.

Innovation is key for Georgia’s development. Policies should be tailored to local constraints. For instance, the country should embrace creative and absorptive capacity building, a sector in which Georgia ranks very low. The last point for his presentation was very interesting—Dr. Preimanis discussed the similarities between Facebook and agriculture. This seemingly low-tech sector of the economy (especially in Georgia) is nowadays able to utilize digital, cloud-based software farming technologies.

As a conclusion of the Q&A session after the presentation, the presenter and the auditorium discussed the issue of the new immigration law amendments and the constraints for foreigners who want to come and work in Georgia. This policy initiative was criticized, while it will hinder the economic development of Georgia, hampering the opportunity of bringing innovation and high productivity to the country.

ISET would like to thank the representatives of EBRD and Dr. Agris Preimanis in particular for providing very interesting presentations and question/answer sessions.