Growth Rate in Georgia’s Agricultural Economy and the Effect of Government Spending

Zviad Khorguashvili of the thinktank GRASS has produced a concise and rather elegant analysis of the growth rate in Georgia’s agriculture sector, and raised two excellent questions that are posed altogether too infrequently.

Has the massive expenditure of taxpayers’ money on Georgian agriculture since October 2012 resulted in greater growth than if the State had restrained its spending?  

If Georgia has a small proportion of its GDP contributed by agriculture, is that necessarily a bad thing?

The article can be read in its entirety here , but the charts are quite illuminating.

Real Growth Rate of Agriculture

Source: Geostat

The Russian Embargo on Georgian wine and other food products imposed in 2006 had a serious effect that continued to be felt until 2013. The large increase in growth in 2013 arguably can be attributed mostly to increased market access to the lucrative Russian market. Growth was still positive in 2014 but the drought seriously curtailed output amongst those farmers not using irrigation.

GDP Per Capita vs % of GDP generated by Agriculture

Source: World Bank

This World Bank data is common knowledge amongst development economists. The most productive and competitive agricultural producers in the world, such as Australia, New Zealand, Canada, USA and the EU (to a point) all concurrently have quite a small proportion of agriculture in their economies, while GDP per capita and living standards are nonetheless quite high. For some reason elements within the Georgian political spectrum find agriculture occupying a small proportion of the Georgian economy a badge of shame, which is irrational.

One should be careful what one wishes for; if the aim is to have agriculture at 50% of GDP, all one needs is to incite a vicious ethnic conflict, destruction of most infrastructure and the collapse of the formal economy, as witnessed in Somalia or Central African Republic, and one’s target will be achieved in short order.

Zviad’s call for a rigourous cost-benefit analysis is a sound one; of course taxpayers should know whether the funds they spend on particular programmes are effective. However, I would apply the proviso that cost-benefit analyses based on only two years of data (2013 and 2014) can provide a skewed outcome, given the massive impact of market access and drought on the figures, which is largely independent of government spending.

It would also be very interesting to study the correlation between growth in the agricultural economy, and previous Foreign Direct Investment in the sector (as a leading indicator, as it can take up to 5 years after breaking ground for many commercial agricultural projects to generate any cashflow). Given the tepid FDI in the sector since the ban on farmland purchase came into play in June 2013, it may not be until 2018 that the effect is fully apparent, if indeed such an effect exists. Our previous study on the effects of agricultural FDI on competitiveness suggests that such an effect exists and we did identify that the effects are not instantaneously observed due to the lag mentioned above.

Tbilisi’s Floods and Donations to the Bereaved

As many will know, a severe thunderstorm on Saturday night in Tbilisi caused a landslide, followed by a severe flood of the Vera River and the areas adjacent to the Mtkvari River. This video from the Ministry of Environment details how the disaster occurred.

The scenes of devastation associated with houses along the Vera River being washed away, with inhabitants trapped inside, has been deeply distressing. Tbilisi people have nonetheless shown up in their thousands, unpaid, to shovel and sweep away debris and to get their city working again. Many companies have donated heavy equipment, shovels and wheelbarrows to the effort and many private citizens have been feeding the volunteers from their own resources. The spirit shown has been heartening

As some may know, our company has a substantial cooperation with ISET, the International School of Economics at Tbilisi State University. Simon sits on the Policy Expert Committee of the school’s thinktank, ISET Policy Institute, we host graduate students from ISET as Summer Interns in Agribusiness, and there is extensive co-operation between our firm and ISET-PI’s new Agricultural Policy Research Centre.

It is with great sadness that we found out today that two of ISET’s students, Mariam Kutelia and Ivlita Jibuti, were killed in Saturday’s flood. Both women were 22 years old and in their final year of their Masters degrees in Economics; they were only a few weeks from graduation. It is a great tragedy that such talented Georgian professionals with such a bright future ahead of them were taken from us so prematurely, and devastating to their families. May their Memory be Eternal.

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ISET has established a fund for the assistance of the families of these two young ladies, who have not only lost beloved family members but their homes as well, and to further endow a scholarship at ISET in their memory. Those wishing to contribute may do so at:

By internal (Georgian) wire transfer:

Partnership for Economics Education and Research
ProCredit Bank, Central Branch
Account Number: GE57PC0233600100011081
SWIFT Code: MIBGGE22 

By international wire transfer:

Partnership for Economics Education and Research (PEER)

Citibank NA

SWIFT code: CITIUS33

ABA#:0210-000-89

Further credit: Citibank FSB, Washington, DC, ABA #254070116

Account #:  9250388020

Account Holder: Partnership for Economics Education and Research (PEER) 

By US domestic wire transfer:

Citibank FSB

Washington, DC

ABA#: 254070116

Account #: 9250388020

Account Holder: Partnership for Economics Education and Research (PEER)