G.INFO: State of the Environment - Georgia - Country Background Information

Half a decade ago, living standards in Georgia were quite good. In the Soviet period, Georgia was well-known for its large shadow economy: this was the only possibility for private enterpreneurship under the orthodox socialist state-controlled economic system. Unfortunately, political liberalisation turned into a turbulent process of ethnic tensions and subsequent rapid decline of economic activities that Georgia has experienced during the last five years. Agriculture has always been more important in the Georgian economy than industry, accounting for 42 % of the Gross National Product in 1991, while industry constituted another 34 %. The rest was distributed between construction, transport - communication and trade. Georgia produced almost the entire citrus fruit and tea crops of the former USSR, and a large share of high-quality grapes and wine. As for industry, it was a relatively large producer of steel pipes, electric motors, aircrafts, computers, synthetic fibers, ferroalloys, chemicals, fertilisers, cement, shoes and canned goods.

Mining of manganese has been a major source of income in the past, but began to decline in the '90s. Georgia has one of the richest manganese mines in the world located in western Georgia - Chiatura district). Total reserves to be considered are about 200 million tons. Before the transition period annual production was 5 - 5.3 million tons, but it decreased to 476,000 tons in 1993 (UNDP report, 1995).

Georgia is rich with non-ferrous metals. In 1992 in Bolnisi (Kvemo Kartli) were produced 836,000 tons of copper ore, 7,300 tons of copper concentrate, 1,222 kg of gold concentrate, and 3,200 kg of silver concentrate (UNDP report, 1995). Arsenic deposits exist in Racha and Svaneti (mountain regions of Western Georgia). Lead-zinc deposits are situated in Tskhinvali region. Georgia is rich also with various resources used in the chemical industry (barrite and andesit in Bolnisi) and in the construction industry ( high quality marble and other decorative stones, decorative gravel, clay for cement production, basalt, teshenite, granite, diorite, porpirite, etc.). In resent years a large reservoir of oil was found in Eastern Georgia, but it still operates at a low capacity.

The period of relative growth of economy in Georgia during the early 80s, changed to deep crisis after the collapse of the Soviet Union. During this period national income decreased by 4.9 %, production of industrial goods by 16 %, production of agricultural goods by 20.5 % (MEP of Georgia, report for UN - ESC, 1995).

The cause of such sharp fall was the fact that Georgia has suffered from specialisation which supplemented the former Soviet economy. The country's industry has been dependent on other suppliers, especially Russia for raw materials, markets and fuel. In 1989, 25% of the electricity consumed in Georgia was imported, almost all the fuel and gas, over 80% of timber, about 50% of cement, and almost 90% of raw materials used in industry ( UNDP, 1995).

Georgia still relies on imports of energy from other countries, notably Russia (electricity and crude oil) and Turkmenistan (natural gas). The countries inability to pay for its energy demands has resulted in sharp cuts of energy imports (Turkmenistan has virtually stopped the natural gas supply).Consequently the entire population has spent the last three winters practically without electricity.The recent crisis has led to an almost complete standstill in the economy, has brought the country to the edge of disaster, and has caused the entire Georgian population to become completely dependent on Western humanitarian aid.

Nevertheless, the recently achieved political stability generally had a positive impact on the economic situation as well. It gave the government an opportunity to replace temporary Coupons with a national currency. The Georgian Lary, introduced in October of 1995, has been stable almost one year and it was equal to 1.25 US Dollars. Process of economic stabilisation in the current year identified with several growth of domestic production. In 1995 it was to 2.6 billion Laries, which exceeded same rate of previous year by 2.4 %. Income of state budget in 1995 was 223.3 million Laries, spendings _ 403.9 million Laries (deficit 180.6 mln.), which is much better than in 1994 (source: State Committee for Social and Economic Information). Though it is too early to talk about recovery, a stop of inflation, strict monetary policy, privatisation, rapid step towards free market and economic reforms are creating a positive background for the restoration of industrial production.