Курсовая работа: Private sector and human-resource development in Georgia

Effective Abolition of Child Labor. According to the law, the minimum age for employment of children is 16 years; however, in exceptional cases, the minimum age can be 14 years. The Ministry of Health, Social Service, and Labor enforces these laws and generally they are respected.  The Government has not ratified the ILO Convention 182 on the worst forms of child labor.

Elimination of Discrimination in Employment.  The Constitution provides for the equality of men and women.  Women's access to the labor market has improved but remained primarily confined, particularly for older women, to low-paying and low-skilled positions, often without regard to high professional and academic qualifications.  Salaries for women continued to lag behind those of men. Reportedly men were given preference in promotions. Of the 114,512 registered unemployed persons throughout the country, 46 percent were women. Women sometimes, but not often, filled leadership positions. According to UNDP, employers frequently withheld benefits connected to pregnancy and childbirth.

1.5.4     Regulations about Real Estate in Georgia

Acquisition of real estate in Georgia. The transfer of ownership rights on a real estate are regulated by the Civil Code of Georgia (set in force on November 25, 1997), by the Laws of Georgia on "Ownership of Agricultural Lands" (adopted on March 22, 1996), "Managing and Disposal of State-owned non-agricultural Land" (adopted on October 28, 1998), "Managing and disposal of non-agricultural land being in usage of physical persons and public legal entities"(adopted on October 28, 1998). Real estate includes land-lots with fossils (minerals), plants and real estate premises as well.

For the purchase of a real estate legally (notary) approved document and purchaser’s registration in general list is required. The application for registration could be submitted by the seller or purchaser as well.

The right of ownership on agricultural and as well as non-agricultural lands is granted only to citizens of Georgia and to private legal entities registered according to Georgian legislation.

The fee for getting legal (notary) approval on real estate transactions is different in each case and depends on the value of real estate. The fee decreases with the increase of property value and fluctuates within 3-0,05%. The fee should not exceed GEL 10 000.

Transfer of real estate, except new dwelling constructions (new constructions are defined to be dwelling constructions built up within 2 years period) are free from VAT. Tax for transfer of immovable thing makes up 2% of property value.

For the registration of right on ownership on land-lot and related real estate and issue of relevant registration notice, the state registration fee makes up GEL 26.

1.7  The Business Environment in Georgia

Investors face a difficult environment in Georgia starting with the fundamental issue of geopolitical instability.  In addition, several surveys of existing and potential domestic and foreign investors show that the business environment is generally perceived as bureaucratic, non-transparent and corrupt.  Georgia is perceived as having significant obstacles to investment in the areas of taxes and regulations, policy instability/uncertainty and corruption. While the average official and unofficial fees for business procedures and the resources required (staff and time spent) may not be the highest in comparison to other countries, the unpredictability of costs and delays related to administrative procedures combined with uneven implementation and enforcement of regulations increases business risk and results in differential treatment among firms.

As shown in the above Figure, when scores on general constraints to business operations for enterprises in Georgia are compared to regional averages, the constraints are shown to be worse in Georgia for every category except the performance of the judiciary and anti-competitive practices. This substantiates the earlier observation that the business environment is perceived as being much more constrained in Georgia compared to competitors in the region. Further, it emphasizes the need for the Government of Georgia to address these critical constraints in order to help improve the country’s attractiveness for domestic and international investors.

Time and again it has been observed that decrees and programs of reform have been adopted but weakly implemented in the absence of the strong political will necessary to effect change. For example, the State Customs Department (SCD) reform committee was established by Presidential Order to finalize a reform strategy and implement an action plan. To date, little has been done on implementation. The committee rarely meets. Reform has been impeded by competing agendas and frequent changes in SCD leadership due to absence of strong political will to reform the customs department.

Corrupt practices significantly affect the process of doing business in Georgia by increasing the cost and the risk associated with a range of administrative procedures.  From the perspective of foreign investors in particular, facilitation payments or bribes do not simply increase business costs.  They constitute significant risk because in Georgia they are unpredictable and uneven. Also, in all OECD countries bribery constitutes a serious legal offence that can be prosecuted in the home country. Finally, corrupt taxation administration (income tax evasion) and customs procedures (smuggling) result in unfair competition for legitimate, law-abiding enterprises.

In addition, the following fundamental issues have the impact on administrative procedures in Georgia, particularly in the areas of customs and tax administration, licensing, and inspections:

·     Inconsistent implementation of legislation and lack of transparent implementing regulations and procedures. Since 1991, a number of laws have been revised and new laws have been written and promulgated. Although these laws are generally modern and well written, poor implementation and enforcement effectively undermine the intent of the laws. Throughout this report, it is clear that the legal framework and official requirements for most administrative procedures are relatively sound. However, problems and inconsistencies arise in implementation as officials often seek to maintain and exercise discretionary authority and control of administrative procedures.

·     Lack of published information on the various administrative procedures required for business establishment and operation. For example, the official gazette is significantly behind schedule and the business stamp approval procedure is still issued by the police at the cost of 10 GEL. The challenge of publishing and disseminating timely and current information among officials and the public is even greater because of the ongoing changes to existing laws. However, timely publication and dissemination is necessary in order to minimize information gaps and opportunities for corruption.

·     Absence of effective mechanisms for holding public officials accountable. In principle, the Administrative Code and the Civil Code include provisions on the conduct and accountability of public officials. However, in practice these provisions are not enforced. Efforts to introduce and implement codes of conduct for taxation and customs officials have had limited effect to date.

·     Absence of effective appeals mechanisms and the inadequate capacity of the courts. The Administrative Code provides for the public’s right to be heard in protesting or seeking clarification on the actions of most government agencies. However, there is no provision for an independent or autonomous arbiter to provide recourse. This function is apparently to be carried out by the courts. However, the integrity of the courts is often suspected and the capacity of the courts to address these issues is limited.

1.8  Institutional Arrangements

1.3.1     Securities Industry

The institutional structure of the securities industry includes the following market participants: reporting companies (i.e. the private companies whose shares are traded at Georgian Stock Exchange), securities brokerage companies, share registrars, clearing banks, Georgian Central Securities Depository (GCSD) and Georgian Stock Exchange (GSE). The overall supervision is carried out by the National Securities Commission of Georgia (NSCG).  The rights of the securities market participants are protected by the Georgian Securities Industry Association (GSIA). The structure of Georgian Stock Market is presented in Fig. 1.3.1.1:

Fig. 1.3.1.1. The Structure of Georgian Stock Market

2.1  Poverty issues

Poverty Trends. The relatively slow rebound from the economic collapse after independence has led to a severe decline in welfare.  Georgia’s annual income per capita is about 56 percent below the pre-independence level, unemployment rates are high (16 percent in 2001) and many Georgians are underemployed.  In the circumstances, poverty, vulnerability and inequality have all increased over the period.  Georgia clearly needs to achieve and sustain higher economic growth rates to improve living conditions.  Given the small size of the domestic market, this can be achieved only through a stronger expansion in export activities, especially of those in which Georgia has a comparative advantage and the potential to generate new job opportunities, such as agro-processing.

Poverty Profile.  Strengthened economic performance resulted in an reduction of poverty in the mid 1990s.  However, Georgia’s growth rate slowed considerably between 1998 and 2000, and consequently inequality and poverty increased as measured by any of several methodologies increased (see Table 2.1.1).  Growth was affected by a number of shocks, including the 1998 Russian crisis, severe droughts in 1998 and 2000, and the increase in the price of energy imports in 2000.  These problems were compounded by internal and external political instability.  Growth recovered in 2001-02, leading to a slight reduction in overall poverty.

Table 2.1.1. Change in poverty in Georgia between 1997 and 2002

Differential Impact of Rising Poverty.  IDA, in close collaboration with the State Department of Statistics, prepared a  Poverty Update covering the 1998-2000 period.  The study found that the increase in poverty affected various socioeconomic groups differently, with growing differentiation among the poor, and signs that the poorest became even poorer.  Poverty depth and severity increased in the observed period by 84 and 94 percent respectively.  Driven by the volatile economic environment and absence of an adequate safety net, vulnerability to poverty for the average household rose significantly, with female-headed households being the most vulnerable.  Although the extent of absolute poverty at any point in time remained around 20-24 percent, 40 percent of the population experienced poverty at least once during the year 1999-2000, and 60 percent of the population faced a real risk of experiencing poverty in the medium term.  The high degree of vulnerability of households led them to apply strategies which may tend to increase chronic (long-term) poverty (e.g., shifting to subsistence farming, or pulling children out of school).

Urban and Rural Poverty.  The trend in overall poverty reflects somewhat different developments in urban and rural poverty.  In 1997, rural and urban poverty incidence were almost the same.  In 1999, the urban poverty headcount doubled in comparison to 1997, whilst the rural headcount increased by 37.3 percent. Then in 2000, responding to the non-agricultural sector recovery after the Russian crisis, urban poverty dropped by 10.2 percent, stabilized in 2001 and declined further by 6.2 percent in 2002.  Because of the drought, rural poverty increased in 2000, remained unchanged in 2001 and only in 2002 decreased by 2.9 percent.  As a result, the difference between the urban and rural headcount has narrowed -- while in 1999, the urban poverty headcount was almost 50 percent over that in the rural population, in 2002 it was 9 percent higher.   

Determinants of Poverty. The Georgia Poverty Update identified that the strongest determinants of poverty risk in Georgia in the period between 1998 and 2000 were economic: employment status, sector of employment, ownership of productive assets and education.  It found an elevated poverty risk among urban households, households with an unemployed head and female headed households, as well as  children aged 7-15, the disabled, those with low levels of education, single pensioners and orphans were experiencing.  The working poor are becoming the majority, often employed in the informal sector with insecure, temporary and low productivity jobs.

Non-Income Indicators of Poverty.   Non-income indicators of poverty in Georgia, inherited from Soviet times, still compare favorably with those of countries with similar per capita income.  The UNDP 2003 Human Development Report ranks Georgia 88th among 175 nations.  However, Georgia faces a major challenge in sustaining these relatively favorable indicators.  Studies conducted by various international organizations (UNICEF, USAID, EC, etc.), indicate that there has been no improvement in the indicators during the 1990s.  In fact, maternal mortality rate, immunization rates, access to health and education, access to safe water and sanitation and other living conditions indicators have deteriorated and the quality of social services has worsened substantially in comparison to the pre-transition situation.

Internally Displaced People.  IDPs vulnerability to poverty is magnified by their lack of access to land.  Thus IDPs living in collective centers are 3½ times less likely to have access to land than the local population, and those living in private accommodations half as likely.  In addition, IDP’s rate of unemployment is very high -- 40% among IDPs living in collective centers.  Government benefits do seem, however, to be reaching the IDPs, with 80% to 90% receiving a government benefit.

Millennium Development Goals.  The estimates of Georgia’s prospects for achieving the Millennium Development Goals (MDGs) show a mixed picture based on Georgia’s current performance, as indicated in Table 2.1.2.

Table 2.1.2: Millennium Development Goals

3.1  Main economic indicators

Sectoral Growth.  Agriculture, industry, trade and transport dominate the structure of the Georgian economy.  Agricul­ture is the largest sector accounting for just under 20 percent of GDP and 50 per­cent of employ­ment, although its share in GDP has decreased steadily (from over 30 per­cent of GDP in 1996).  Industry contributes about 14 percent of GDP and 6 percent of employment, with its share changing little.  The share of trans­port and tele­communi­cations has nearly tripled from 4.6 percent in 1996 to 12.1 percent by 2002.  Transport has been the fastest growing sector, growing at over 20 percent annually because of the rapid expansion of oil transit from the Caspian Sea.  Although transport turnover has tripled, it is still at one third of the pre-independence level.  Other fast growing sectors include construction and finan­cial services.  Trade has grown slightly faster than overall GDP. Sectoral growth index is presented in Fig. 3.1.1.

According to information from 2001 88.6% of the economically active population was employed, thus the unemployment rate was 11.4%.

The distribution of the employed work force by economic sectors is as follows:

According to 2001 data, the minimum subsistence level for a medium sized family (4 persons) at average prices was 205.2 GEL.

3.2  Agriculture

Introduction.  Only 44 percent of Georgia’s land is used for agriculture. Twenty-six percent is arable land, 9 percent is used for perennials, 65 percent is pastureland, and 0.4 percent is fellow land. Sixty percent of the arable land needs artificial irrigation. The soil is mainly moderately fertile and easy to cultivate. Table 1 below shows the distribution of the agricultural land by agricultural product.

Table 1 Distribution of Agricultural Land by Product

In the 20th century, Georgia became a country of agro-industry, with well-developed agriculture and food industry and with a good level of production. More than half of its GDP came under the agro-industrial sector of the country; 47 - 48% of the main funds were accumulated within the sector and it employed 41 - 42% of the total population of Georgia.

Georgia used to be an important exporter of food and one of the main suppliers of vegetables, tea, citrus fruits, wine, mineral waters, brandy, canned and fresh vegetables and fruits to the markets of the former Soviet Union. In the second half of the 1980s, the Georgian share of the food market of the former Soviet Republics was 10 percent. The total amount of exported food products was 1.7 times more than imported ones. The country is now undertaking actions to re-establish this exporting.

Since independence in 1991 the country experienced many years of civil war and ethnic conflicts, with 260,000 people internally displaced.

However, Georgia's economy is still strongly linked to the Russian Federation and the Commonwealth of Independent States (CIS). Approximately 50 percent of its trade is with the CIS.

Agriculture is a main source of income and employment for the majority of the population, accounting for more then 30 percent of GDP. Output in the sector is only about 40 percent of its 1990 level, but employment in the sector has doubled and it now accounts for over 50 percent of the total employment.

Land privatisation has focused on the small-scale (household/subsistence) sector with little real progress in restructuring the former large state farms. Land reform has resulted in the allotment of small parcels of land up to 1.25 hectares to each rural family and the lease, through district authorities, of state owned land to persons or legal entities, with the aim of creating a subsistence sector for small farmers and a market sector controlled by large leaseholders.

Private producers account for the significant share of fruit, vegetable and livestock production, when their share in wheat production is about two thirds of the total wheat production in the country. The bulk of the domestic wheat production is consumed on farms for food, seed or feed. Indications are that only 20 percent of domestic production of wheat is marketed.

Low yields, also as a result of poor infrastructure, inadequate access to credit for inputs and suitable machinery, and high costs associated with transport and marketing have had a negative impact on food production and the earning capacity of a significant proportion of the population and thus on household food security.

The state of irrigation and drainage systems is also a major constraint to increasing crop yields and the competitiveness of domestic produce with imports. More than 60 percent of grain, 60 percent of dairy products and 33 percent of meat consumed in the country are imported.

Agricultural production in Georgia dropped sharply in 2000 due to a serious drought. WFP/FAO Crop and Food Supply Assessment mission carried out in mid-August 2000 estimates that Georgia will face a severe food crisis due to the drought. This situation is being exacerbated by on-going serious economic problems.

After droughts, agricultural production showed a slight increase of 5.6 percent in 2001, however the share of agricultural output in GDP dropped from 21 percent in 2000 to 19.2 percent in 2001.

During the present year, USAID has launched a five year program, called Support Value Added Enterprise (SAVE) that will promote economic growth through expanded production and sales of added-value agricultural products on international markets. Through this program the US government will support agriculture development through market expansion, standards on organic food production, distribution, improved credit and whole-chain food distribution networks.

Key Agriculture Indicators.

Agricultural output per hectare of agricultural land and per capita (US $)

Source: Georgian Agriculture 1999

Agriculture in GDP

Source: State Department for Statistics of Georgia (1st Row), GEPLAC , 1997(2nd Row).

Trends in Share of Total Agricultural Production, (%)

 Source: SDS, Georgian Agriculture 2000, p.9.

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