Giorgi Mzhavanadze of MPRC discussed the lari’s depreciation in November 2016. He analyzed the recent comments of Prime Minister Giorgi Kvirikashvili on national currency dynamics against the US dollar. Positive dynamics in exports, money inflows, and tourism did not overbalance increasing imports in November. As a result, the Georgian lari depreciated against almost all currencies of its trading partners; the US dollar (-5% MoM), the euro (-2.8% MoM), the Russian ruble (-2% MoM) and the Armenian dram (-4.3%). The national currency strengthened only against the Azerbaijani manat (+1.6% MoM) and the Turkish lira (+1.6% MoM). The National Bank of Georgia did not intervene in the FX market in November. Watch the video from Maestro TV to learn more.
The purpose of this report is to take stock of the existing regionally disaggregated data and to identify disparities between the regions of Georgia. Few similar studies exist, with the major exceptions being the Diagnostic Report by the Task Force for Regional Development in Georgia (2009) and the Georgia Urbanization Review by the World Bank (2013). This report thus fills a gap, attempting to inform both future research and the formulation of regional policy. The analysis in this report is mainly building on Geostat statistics, in particular the Integrated Household Survey, the Millennium Challenge Corporation Survey, and the Village Infrastructure Census. While in principle this allows for a detailed analysis of regional disparities, this is limited by issues with the data. Two issues are of importance. First, with the last census dating back to 2002, the reliability and quality of the current survey data is potentially compromised. Second, large and systematic data gaps exist for infrastructure, environmental issues, and cultural and recreational resources. It should also be noted that most surveys for any observation only indicate the region, but not the municipality. Thus any analysis is restricted to be along existing regional boundaries.
This research aims to explain how Georgia’s economic development in the past 12-15 years took place despite the absence of rural-urban migration, defying the predictions of the Lewis Model - one of the most influential theories in development economics.
Telavi, the former capital of the Kingdom of Kakheti, is a beautiful town with spectacular views of the Alazani Valley and Caucasian mountains. In the 18th century, King Erekle II reigned from Telavi. The palace can still be seen, and the statue of King Erekle stands proudly in the middle of the city's town square. More importantly for the city dwellers, Telavi is the capital of Georgia’s traditional winemaking. This month, however, the capital of Georgia’s winemaking has for a couple of days become the capital of Georgian beer drinking, in the best of German Oktoberfest traditions. Everything was planned and executed meticulously. Female waitresses in traditional Bavarian outfits delivered excellent beer, live music was played in every corner, Telavian motorcycle riders also joined the festival and advertised it by rallying in the streets… THE ADVANTAGE OF HOMECOMING, OR MIGRATION IN RETURN Telavi’s Oktoberfest was the brainchild of one guy, Sandro Tchuadze, a native of Telavi, who went to Tbilisi to pursue a (useless) bachelor’s degree. After getting a piece of paper certifying his educational achievement, Sandro came back home to help with logistics and marketing in his family’s slow-developing beer distribution business. Yet, instead of staying in the business and waiting for something good to happen, Sandro decided to pursue new opportunities. It all started with Sandro getting a message from his bank that his new credit card had a borrowing limit of 3,000 GEL. Not knowingly, Sandro’s homecoming coincided with a global movement of millennials out of large cities towards picturesque towns and villages in the countryside. Recent studies suggest that more and more millennials in the developed world are saying goodbye to their beloved urban centers and moving outside their cities. This trend is a reversal of the rural-to-urban trend of migration that has characterized the world since the Industrial Revolution (Ritzer, 2000). It is interesting to ask who those people are, and why they prefer to move away from cities. In Israel (research by Arnon & Shamai, 2011), these are people with high human capital who are educated and employed, and who are driven by “post-materialistic” values -- fulfillment and self-expression, appreciation of the quality of life in a green environment and a meaningful community. Not unexpectedly, the wind of post-materialism has not blown through Georgia yet. Quite the opposite; according to recent census data (2014), more than 340,000 inhabitants have migrated to Tbilisi over the past 15 years, while only 94,000 have left Tbilisi to move to the regions. Of course, Tbilisi, despite being crowded and polluted, has a lot to offer: employment opportunities, education and healthcare services, entertainment, etc. NO VENTURE, NO GAIN (КТО НЕ РИСКУЕТ, ТОТ НЕ ПЬЕТ ПИВО) In a place like Telavi, one has to create his/her own opportunities as there are simply no fascinating jobs on offer. Having some understanding of the beer industry, Sandro decided to bet the bank’s 3,000 GEL on a bar that would serve beer in the center of Georgia’s winemaking capital. The first place he rented was a tiny shop, about 16 sq. meters, which had the advantage of being affordable: it cost Sandro only 150 GEL in monthly rent. Yet, the location was not great, nor was the building’s exterior appealing to potential customers. To compensate for these disadvantages, he invested all his energy (not money, since he had none) in advertising his new business through social media. He created a personal Facebook account for his ‘Ludis Sakhli’ (not a business page, which is costly) and added as many people from Telavi as possible. For several days, he was identifying people living in Telavi, friends of friends, friends of friends of friends, all of whom he invited to follow his shop. Within two weeks, he managed to reach 4,000 people. In addition, he wanted to make his business different from the competition. He thought of selling live crabs, which was something new for Telavians, took photos live crabs in his aquarium and posted them on Facebook. Many people got interested and came to check out Sandro’s place, his live crabs, and, of course, his beer. “Ludis Sakhli” came to be recognized as a place to visit in Telavi. Now it was necessary to sustain and expand his customer base. A key strategy was to extend the assortment of beer and add different types of fish. In the first month alone, he offered six different brands of beer. As far as pricing is concerned, he went for a low-markup-high-volume strategy. This approach turned out to be well-suited for the thin wallets and large wine-and-beer bellies of his fellow Kakhetian customers. Sandro’s sales exceeded expectations, but every single tetri he made had to be reinvested in the business. After a successful year, Sandro was confident enough to open a new bar. This time, however, it was designed to serve a different segment of customers – tourists and those many young Telavians who would go to the central square to hang out with friends. Sandro found a suitable, much larger and nicer place close to the central city square. He invested in a proper renovation and added wine to his assortment (tourists, who frequently stumbled into his shop, stubbornly demanded Georgian wine, not German beer). Having started his business with 3,000 GEL, Sandro currently employs seven local staff. The menu includes 16 varieties of beers, both Georgian and foreign, 30 types of fish, and a wide variety of wines. DOING GOOD AND DOING WELL! On summer evenings, many Telavians stroll the city’s picturesque town square. Yet, despite being Georgia’s 8th largest town in terms of population, Telavi does not have much to offer to its youth: there are no cinemas, no football fan clubs, and no music clubs where young people can go and enjoy their evenings. By establishing his business and bringing Oktoberfest to Telavi, Sandro certainly did well for himself, but he did so by bringing a lot of joy to his community, as well as to the tourists who visit Kakheti during the period of young wine festivities (rtveli). Fortunately, Sandro is not alone in aspiring to create a difference in his community. Quite recently, in the summer of 2017, two friends, Eduard and Nana, opened a social bar named “Mego-Bari” (a great pun, given that megobari stands for ‘friend’ in Georgian) in Zugdidi, the capital of Samegerlo. In another example, Keti and her friends established a literary café “Tsodnis Café” (‘knowledge café’) in Tsnori, a tiny town in Kakheti, hosting concerts and public seminars. Yes, concerts and public seminars in Tsnori! So, if you are still daydreaming about life in a serene countryside paradise, time has come to realize that you can simply create one by yourself. Just follow in the footsteps of Sandro, Eduard, Nana and Keti. “This publication was made possible through a grant given by the People of the United States of America to Georgia Through Millennium Challenge Corporation (www.mcc.gov) under the terms of the compact signed between the two countries. The information provided on this website/ in this publication is not official U.S Government information and does not represent the views or position of U.S Government or the Millennium Challenge Corporation and Millennium Challenge Account – Georgia.” See our article usage guidelines
Between 2000 and 2012, Sweden fell in the Programme for International Student Assessment (PISA) by 16 places from the 7th to the 23rd rank, and in the 2015 PISA study, Sweden ranked 28th of 34 countries in mathematics! As the OECD writes: “No other PISA-participating country saw a steeper decline in student performance over the past decade than Sweden.” Who is to blame? TOO MUCH COMPETITION? Those from the left side of the political spectrum claim that too much freedom of choice was introduced to the Swedish educational system. Since 1992, a voucher system (as proposed by Milton Friedman already in the 1960’s) allows parents to send their children to private schools without having to pay tuition. Public schools are free of charge, and private schools receive a fixed payment for each student redeeming their voucher at the school. As Raymond Fisman of the Columbia Business School writes: “Swedish school reforms did incorporate the essential features of the voucher system advocated by Friedman. The hope was that schools would have clear financial incentives to provide a better education and could be more responsive to customer (i.e., parental) needs and wants when freed from the burden imposed by a centralized bureaucracy. And the Swedish market for education was open to all, meaning any entrepreneur, whether motivated by religious beliefs, social concern, or the almighty dollar, could launch a school as long as he could maintain its accreditation and attract ‘paying’ customers.” In the ears of market libertarians, this sounds like a winning approach. Yet, Fisman argues that the schools were competing with one another not through quality, but through “ease of access” and “ease of receiving a degree” (unlike in the US and in Georgia, in Sweden the grading also of important exams is done by the teachers of the school where the test-takers are enrolled). Fisman concludes: “A sizable portion of the much-vaunted outperformance of voucher school students could be chalked up to nothing more than easy grading. More surprising still, the voucher school grade inflation is almost as high for math and science (where you’d think an answer is either right or wrong) as it is for Swedish.” This explanation is contested by other researchers, like the controversial economist Tino Sanandaji from the Stockholm School of Economics, who points out that only 14 percent of fifteen-year-olds were attending private schools. As the “race to the bottom” would not affect public schools, which have funding that does not directly depend on the number of enrolled students, he argues that the voucher system cannot be blamed for Sweden’s educational disaster. Sanandaji rather attributes the decline to experiments with new pedagogical methods, where traditional classes have been replaced by group work and “research projects” and a softening of the grading system. TOO MUCH IMMIGRATION? Another reason is put forward by Daniel Heller Sahlgren, Ph.D. student at the London School of Economics. He thinks that the slide does not primarily reflect a decline in the quality of the Swedish school system but attributes it to immigration. He summarizes his econometric findings in an article in The Spectator: “The change in pupil demographics due to immigration explains almost a third of the average decline between 2000 and 2012: 19 per cent in mathematical literacy, 28 per cent in reading literacy, and 41 per cent in scientific literacy. The effect is especially pronounced in recent years, coinciding with accelerating refugee immigration. Indeed, between 2009 and 2012, 43 per cent of the average Pisa score decline is explained by altered demographics: a full 29 per cent in mathematical literacy, 45 per cent in reading literacy, and 62 per cent in scientific literacy.” Sahlgren’s explanation is in line with the observation that homogeneity (as opposed to diversity) seems to be conducive to learning success. Finland, which was largely spared by the international immigration flows until the late 2000’s, had an unusually homogeneous population. Particularly the frequently praised Finnish village schools, where innovative cross-age and cross-social background teaching takes place, have very homogeneous student bodies. And when Finland became a destination for immigrant flows, its performance started to decline. From 2009 to 2012, Finland dropped by 2.8 percent in math, by 3 percent in science, and by 1.7 percent in reading comprehension. In the 2015 results, Finland’s continued to fall back, and it is now ranked 12th in math, fifth in science and fourth in reading (which is, of course, still pretty good, but Finland previously took first place in PISA). LESSONS FOR GEORGIA "I received a distinction for both my degrees and I now clean s*** in a foreign country,” says Benjamin Bosch, a young Spaniard who became emblematic for some European countries’ high youth unemployment rates. Holding two bachelors and one master’s degree, he ended up in a London café cleaning bathrooms. One could find similar cases in Georgia. A fictitious Beka Boschadze might say: “I received two Ph.D.’s and three master’s degrees but now drive around as a taxi driver in a s***ty Opel in Tbilisi”. Georgia’s performance in PISA is even worse than Sweden’s. In the 2015 PISA study, Georgia took the places 59 in math, 61 in science, and 64 in reading (out of 72 countries). But what are the reasons? Georgia has no noteworthy immigration (the population is quite heterogeneous but the different ethnicities are culturally similar), and given the centralized NAEC exams, there is no risk for a “race to the bottom” in Georgia. The reasons for the bad performance of Georgia and Sweden are in fact very different. In Georgia, degrees and formally high qualifications do usually not ensure job market success. This is very different in Sweden and many other northern European countries, where the unemployment rates of highly skilled people are far below general unemployment rates and high-skilled unemployment is largely unaffected by the business cycle. Unlike in Sweden, the problem in Georgia is not so much a structural one, but it is about acquired skills: the human capital acquired in Georgia is hardly valued by employers, and many Georgians learn what is not demanded on the market. Georgian educational policy should therefore be guided by the following question: what are the skills and qualifications that are demanded in the 21st century? The answer might be given by Melamed and Salant (2010), who surveyed the literature and identified the so-called “21st Century Skills”: informational literacy, higher order thinking, communicate and cooperate, technological competence, and learning how to learn. Informational literacy refers to the ability to gather, edit, analyze, process, and connect information. Higher order thinking is about problem solving, argumentation, and the competence to criticize. The meaning of the other skills is self-explanatory. None of these skills refer to formal knowledge about a subject matter. Moreover, given their nature, the 21st century skills can be, and need to be, conveyed throughout the whole educational career of a person, which today starts at preschool education and ends at retirement age (the so-called “lifelong learning”). The debate of what is an optimal education is very old. Many ideas, from Montessori to Steiner (Waldorf Schools) to Summerhill, have been discussed and tried out since the 19th century, and there is no consensus on the most effective way of teaching. At the same time, classical teaching is all but dead – even Soviet style learning has experienced a revival with the Russian Schools of Mathematics, which are mushrooming throughout the USA, offering “best practices of math schools in the former Soviet Union, adapted to the US educational environment.” In a follow-up article, we will look at different innovative approaches to education and discuss which of those may be most suitable for Georgia. See our article usage guidelines