CC BY
42
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In addition to everything else, this means that demand for foreign workers is rising in the labor markets of the Baltic countries. Along with Ukraine and Belarus, the stable Baltic states, which are part of the European expanse, will draw labor migrants from the western republics of the Commonwealth of Independent States, as well as the Russian Federation. Russia will enter an acute depopulation phase in the next ten years. By 2015, the Russian population will decrease by 5% compared to the 2005 level, and by 12% by 2030. The size of the able-bodied population will decrease even faster. The situation with the 15-24 and 40-49 age groups will become particularly tense. On the whole, the situation in Kazakhstan’s labor market is a little less acute. But here too after 2010 the size of the 15-24 and 40-49 age groups will decrease at accelerated rates. Russia and Kazakhstan can only compensate for this drop by means of incoming workers from labor-surplus Azerbaijan, Kyrgyzstan, Tajikistan, and Uzbekistan.
Finally, in the near future an increase should be expected in competition over foreign migrants between the post-Soviet labor-deficit countries and aging Europe. Europe’s aging will be accompanied by a major restructuring of the labor markets. These changes will evidently take the form of an increase in demand for guest workers. As was noted above, labor migration from Ukraine is approximately equally distributed between the Russian and European markets at present. This balance will most likely shift increasingly in Europe’s favor in the future. The latter will become an ever greater rival of the post-Soviet recipients of foreign workers.
It is possible that some European states may simplify the naturalization process for guest workers. It is also possible that the naturalization procedure for people from the neighboring European CIS republics will turn out to be even simpler than the similar procedure for labor migrants from Muslim and African countries. The latter is particularly likely in the event of a further increase in the trend toward a global civilizational confrontation. All of this will greatly increase Europe’s attractiveness as a destination for migrants from the post-Soviet republics.
Vakhtang BURDULI
D.Sc. (Econ.), department head at the Paata Gugushvili Institute of Economics
(Tbilisi, Georgia)
THE POTENTIAL OF HIGHER INVESTMENT ACTIVITY IN GEORGIA
Abstract
T
he author offers his analysis of the so-far inadequate investment activity in Georgia and points out that its ge-
oeconomic advantages should be more fully tapped. He explains the situation by the obsolete technology, insufficient re-
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sources of the banking sector expected to ensure long-term lending, and the not always easy task of attracting foreign
money into the priority branches of material production and suggests some possible solutions.
I n t r o d u c t i o n
For a long time during Georgia’s post-Soviet period the production growth rates remained negligible. In 2000-2004 they were lower than in most other states with transition market economies. This is explained by the inadequate development of the financial and lending system, the undeveloped market economy, the weak production infrastructure in most Georgian regions, the still smoldering conflicts, and the far from simple task of borrowing high technologies.
The latter task calls for a new investment environment conducive to a high level of targeted investment activities. While some of the Soviet successor resource-rich states are in a relatively better position when it comes to accumulating financial reserves (part of which can be used for long-term investments), Georgia’s geographic location, its main advantage, remains untapped.
An analysis of the aggregate investments in basic assets in 2000-2004 reveals that their total amount is growing at a pace that cannot be described as adequate for a republic with transition economy. A study of investments by branch shows that transportation, communications, and construction are developing much faster than the other branches while industry and agriculture receive much less money. According to the preliminary figures, the flow of money into these branches has recently increased. This is only natural to a certain extent: communication and other systems that serve the basic sectors should develop at a faster pace.
Investment Activity in Georgia Today
There are two types of investments—real and financial. The former are capital investments made directly in the means of production and consumer goods (this can be done with borrowed money). The latter are investments in securities and banks.1
This classification makes it impossible to divide investments into newly created (in real terms) and those that existed earlier. For example, a company that buys the controlling interest of a functioning enterprise can either continue working without renovating technologies or limit itself to the minutest of improvements. Meanwhile, continued competitiveness (in industry, construction, and agriculture in particular) demands frequent technological upgrades; in many cases diversification of production is also needed (the range of products or models of identical products of different designs, prices, sets, and range of consumer potential should be diversified). This is expensive and calls for investments in the retooling of production or construction of new enterprises based on state-of-the-art technologies.
Investment terminology differs from country to country: in Russia real investments are sometimes described as direct, while in America direct investments are understood as investments amounting to more than 10 percent of a company’s capital. In world practice foreign investments are classed as direct investments if they amount to over 25 percent of a company’s capital.2
1 See: Yu. Danilov, A. Sitkin, A. Sharaeva, “Rossiiskie investitsionnye kompanii,” Rossiiskiy ekonomicheskiy zhur-nal, No. 9, 1992, pp. 55-56.
2 See: Ibid., p. 55.
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There are so-called intellectual investments—the money spent on licenses, patents, know-how, personnel training and retraining, R&D,3 and franchising contracts that together with the right to use the name of the franchise company or the principal presupposes transfer of technologies and knowledge to the agent company.4 Globalization has greatly increased the value of intellectual investments and high technologies.
New direct investments in production that form basic assets (the creation and exploitation of one’s own new technologies or buying new technologies, licenses, and know-how together with the skills needed to use the new equipment) ensure economic advance. The same applies to companies engaged in financial (with the exception of those that live on money earned on the stock exchange) and real investments (in structure modernization and new technologies, in creating and putting out new products, etc.).
Basic assets are assets created during production or non-produced assets repeatedly used during production.5 Finally, the contemporary content of the term “investments in basic assets” (the central one in this article) is described as the volume of newly created (built or bought and not previously used in the country) basic production assets of acquired value or that created for one’s own consumption as well as the cost of overhaul of the basic assets and the operations needed to radically upgrade the quality of land.6
In Georgia the total volume of investments in basic assets is steadily growing. In 2000 it amounted to 1,578.4 million lari;7 in 2001 to 1,872.8 million; in 2002 to 1,892.0 million; in 2003 to 2,287.7 million; and in 2004 to 2,697.6 million.8 In recent years the upward trend was even more obvious; transportation and communication received the bulk of the new investments: from 262.5 million lari in 2000 to 854.1 million in 2004. In recent years construction has been receiving more money while agriculture received next to nothing (in nationwide terms): 56.1 million in 2000 and 81.5 million in 2004; the same can be said about industry: 280.8 million lari in 2000; 298.3 million in 2001; 324.8 million in 2002; 209.4 million in 2003; and 243.5 million in 2004.9
Investment activity in Georgia can be illustrated by the comparison (not directly related to the present subject) between investments in other countries quoted in the republic’s statistical yearbook.10
Calculated according to the number of employed in Georgia’s total population (34.7 percent in 2002),11 it is lagging behind most states with transition economies: Azerbaijan, 44.4% (2001); Ukraine, 43.9%; Slovakia, 38.9%; Hungary, 39.5%; the Czech Republic, 46.0%; Latvia, 43.4%; Lithuania, 40.7%; Poland, 36.7%; Rumania, 42.4% (2003), etc. and behind developed countries with a market economy: Austria, 46.8% (2001); Belgium, 39.7%; Denmark, 50.6%; France, 39.7%; Finland, 44.2%; Sweden, 47.2%; Japan, 50.2%, etc.12
The relatively low investment activity in Georgia in 2000-2004 is illustrated by comparing the average (for the five years) indices of the domestic product’s growth rate. In most states with a transition economy this index is very high compared to the developed countries, which is explained by the
3 See: Yu. Danilov, A. Sitkin, A. Sharaeva, op. cit., p. 56.
4 See: S. Shane, M.-D. Foo, “New Firm Survival: Institutional Explanations for New Franchisor Mortality,” Management Science, Vol. 45, No. 62, February 1999, pp. 142-149.
5 See: Ibidem.
6 See: Ibidem.
7 $1 is equal to about 1.7 lari.
8 See: Statistical Yearbook of Georgia. Tbilisi, 2005, p. 221.
9 See: Ibidem.
10 See: Ibidem.
11 The figures are based on the latest population censuses in the corresponding countries even though there were no radical changes in the numbers of employed in 2000-2004 in these countries.
12 Countries with comparable population sizes and larger states were selected for the sample.
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colossal decline of the economy of obsolete technologies (necroeconomics)13 in these countries early in the transition period.
Today, power shortages and certain other shortcomings in the investment climate (the absence of the latest market infrastructure—permanently functioning financial funds designed to encourage high-tech production, introduction of the latest technologies, engineering and consultation firms, export-encouraging organizations, etc.) interfere with the rapid growth of investments in the industrial sector.
In the near future, however, the situation in industry and agriculture might improve radically: this is already underway in construction, telecommunications, and finances. The latter sphere still lacks an efficient mechanism for encouraging long-term investments in technology, production equipment, etc. It should be said that in countries with a market economy post-crisis revival starts in construction and agriculture.
The key macro- and micro-economic indices depend to a great extent on increasing domestic and foreign trade turnover, which improves trade balance and, by the same token, greatly contributes to the republic’s better economic situation.14 In Georgia the trade balance remains negative: -$386,565 thous in 2000; -$434,119 thous in a 2001; -$447,831 thous in 2002; -$675,937 thous in 2003; and -$1,199,332 thous in 2004.15
Why Investment Activity is Low in Georgia
The negative indirect and direct indices related to investment activities stem from the socialist command-administrative system of economic management. Eldar Ismailov has pointed out in this connection: “Repudiation of competition in the command economy destroyed the only effective stimulus of economic development, as a result of which low-quality products were invariably manufactured, the price of which was artificially reduced due to subsidies from the state budget. The main source of government revenues in the U.S.S.R. was the sale of alcohol, and essentially the only way to obtain stable foreign currency was through selling raw material (primarily oil) to countries with a developed market economy.”16
For several reasons discussed below, until recently targeted economic activity in Georgia was mounting at a very slow pace. The same author has identified the most typical factors common to most post-socialist states: “After the disintegration of the unified economic system and the emergence of financial difficulties both at the level of the newly formed states and at the level of individual enterprises, a situation was created in which the region’s own potential for technological regeneration was essentially non-existent. As a result, the obsolete equipment also became physically the worse for wear. And this in turn was the main reason for the non-competitiveness of most of the goods produced in the post-Soviet countries (due to their low quality and/or high production costs), which is making it impossible to gain access to the world markets and actively integrate into the world economic system.”17
One cannot but wonder why the rapidly unfolding processes in the world economy did not exert a positive influence on investment activities in the key sectors of Georgia’s economy, in industry and agriculture in particular? What was quoted above can be specified: some of the reasons are typical of all post-Soviet states while others are limited to Georgia.
13 See: V. Papava, Necroeconomics. The Political Economy of Post-Communist Capitalism (Lesson from Georgia), iUniverse, Inc., New York, Lincoln, Shanghai, 2005.
14 See: G.Sh. Tsereteli, V.Sh. Burduli, “Problemy razvitia tovarnogo rynka v postsovetskoy Gruzii na fone evolutsii mirovoy ekonomicheskoy sistemy,” Ekonomicheskaia nauka sovremennoy Rossii, No. 4, 1999.
15 See: Statistical Yearbook of Georgia, p. 277.
16 E. Ismailov, V. Papava, The Central Caucasus: Essays on Geopolitical Economy, CA&CC Press AB, Stockholm, 2006, p. 86.
17 Ibid., p. 85.
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Let us discuss the import/export problem. Little is being done to lower the mass of imported products: meanwhile this could revive local and foreign investment activities. Agricultural products and products of the food industry are imported in huge amounts while some of them can be locally produced; some agricultural products are imported from countries where agriculture enjoys systemic state support and where labor remuneration is low. Imported products of the food industry are either of a very low quality (because of chemical ingredients and technological failures in the production process18 which are ignored for the sake of cheaper production) or the export country takes care to export high quality products.
It should be taken into account that “recently industrialized and many developing countries have increased the scope and intensity of state support of their exporters for the sake of national competitiveness. 19 The United States, for example, spends over $10 billion a year to support export; China $7 billion; and the Czech Republic $1.8 billion.”20
It should be said that in other manufacturing branches Georgia imports both high quality products of traditional branches sold at affordable and unaffordable (for most consumers) prices as well as high-tech products (computers, television and radio equipment, etc.), some of which (both traditional and produced by new branches) could be locally produced in an adequate investment climate. In fact, the republic imports low quality products or those seen as obsolete in the West and Japan and no longer used. This is primarily true of the huge number of old cars that negatively affect the environment. It would be much wiser to build one assembly plant of a leading corporation based on flexible technologies capable of putting out a variety of models. This would heal the so-far negative export/import balance and create new jobs directly at the plant and related enterprises. Today, transnational corporations are widely using outsourcing: they transfer production of component parts, design renovation, etc. to enterprises, preferably in the countries that hosted their plants.
Little is being done to promote traditional export items. Despite the country’s fairly large potential in exporting wines and liquor, fruit, construction materials, and products of the footwear and leather industry, they are still waiting for measures designed to boost their competitiveness. A contemporary tourist infrastructure is unfolding too slowly. There is no systemic policy in attracting new, latest, and high technologies (some of their products can be sold to other countries). There are enough people interested in developing the market infrastructure very much needed for production and marketing (export marketing in particular) of such products, which means that tangible results can be achieved. In Georgia, and in most of the other former Soviet republics for that matter, the financial sector is not strong enough, especially when it comes to long-term investments. Today, the Georgian authorities are exerting efforts to remedy the situation. For example, Societe Generale, a large French bank that can attract considerable financial resources for long-term financial projects, bought a controlling interest in Georgia’s Republic Bank.21 Negative processes in the banking sphere are still going on. The owners of the private United Georgian Bank, which had been functioning for a fairly long time, sold the controlling interest in their bank to the Vneshtorgbank of Russia with predominantly state ownership (99 percent of its shares belong to the Russian government).22 Russian economists are also convinced that the state’s greater involvement in Russia’s banking sphere is hardly advisable.23
So far, globalization in international economic integration is a predominantly one-way process: Georgia exports food and consumer goods as well as all types of high-tech products. Today even the
18 In a similar situation Georgia eliminated the service that controlled the quality of locally produced foodstuffs (see: V. Papava, “The Georgian Idea of Liberalism ... and ‘back’ to Europe along the Road of Columbus,” 24 Hours, No. 263, 27 November, 2006, p. A5, in Georgian).
19 Naturally, when needed export of agricultural and other products is supported.
20 E. Semenova, “Vozmozhnosti innovatsionnogo razvitia,” Ekonomist, No. 3, 2006, p. 21.
21 See: V. Papava, “The Georgian Idea of Liberalism.,” p. A5.
22 See: Ibidem.
23 See: E. Yasin, L. Grigoriev, O. Kuznetsov, Yu. Danilov, A. Kosygina, “Investitsionny klimat v Rossii (doklad k 15 s’ezdu RSPP),” Voprosy ekonomiki, No. 5, 2006, pp. 63, 64.
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traditional branches are operating in unfavorable conditions and are unable to fully tap their production potential even if they have enough raw materials and workforce.
The high-tech market is occupied by companies from countries where their efforts are largely supported by the state (South Korea, Malaysia, and China) and where labor is relatively cheap.24 So far, this is one of globalization’s advantages—otherwise under conditions of low purchasing power most people would have been unable to buy TV sets, computers, mobile phones, and other high-tech products. However, this trend should not be permitted to grow in the future: first, it slows down the creation of new jobs in the republic; second, Georgia is missing its chance to become a country of high-tech production. Today, this is one of the conditions of continued existence and development in the contemporary world; the country has enough educated specialists able to master high technologies after a short period of retraining. Even a situation where import tariffs are being gradually lowered (one of the WTO’s demands)—tariffs protect countries against importing unnecessary products— Georgia can organize high-tech production for the domestic and foreign markets. Below I shall dwell on the process in greater detail.
Finally, due to the inadequate investment climate Georgia is finding it hard to attract high-tech foreign enterprises that belong to large transnational corporations. The same is true of medium and smaller businesses (those that can bring latest technologies to the republic and plant them in the local soil).
There are positive features as well: Georgia is opposing the efforts of Russian (mainly raw material) companies to buy Georgian industrial enterprises (within the project that Anatoly Chubais described as a Liberal Empire):25 Russia is by far a source of high and other latest technologies. The project is of an obviously political nature: large Russian companies are urged to buy strategic enterprises in the former Soviet republics to cement Moscow’s influence there. A. Kuznetsov, in particular, has pointed out: “Recently a third type of Russian foreign direct investments has appeared in the CIS countries; these projects may be used to put political pressure on the former Soviet republics. Many of the Russian companies did not hail A. Chubais’ idea of a Liberal Empire. Still RAO UES’s investments alone are large enough.”26 Russia has set about the business of empire-building in the Caucasus by exchanging Armenia’s debt to the Russian Federation of $93 million for industrial facilities.27
In the summer of 2003 RAO UES bought shares in America’s bankrupt AES Silk Road Company that operated in Georgia. After the Rose Revolution Staton Exquisite, developed by Promyshlenny Investor industrial holding of Russia, bought an enterprise that mined and processed gold and cop-per.28 Later, however, Gazprom, Russia’s state company, failed to buy the main gas pipeline that connected Russia and Armenia after America’s active interference.29 Georgia declined Russia’s request to acquire various facilities in Georgia in exchange for not doubling the gas prices. I have already written that it is much wiser to attract real investments of high-tech companies from countries with a developed market economy.
I shall conclude this section of my article by saying that in Georgia (and also in Russia and other transition countries for that matter) there is no system-forming policy aimed at attracting and encouraging high-tech branches, structural changes, and investment activities. A. Neshitoi has the following to say about investments in Russia: “Investments are not increasing fast enough. The problem of resource accumulation is still acute. According to the RAS Institute of Economics and other scientific institutions, between 2000 and 2005 investments should have been increasing by 30-35 percent every
24 Nearly all high-tech medicines sold in Georgia are imported from the West, Russia, Ukraine, the Baltics, India, etc.
25 See: V. Papava, F. Starr, “Russia’s Economic Imperialism,” Project Syndicate, January 2006, available at [http:// www.project-syndicate.org/commentary/papava1].
26 A. Kuznetsov, “Dva vektora ekspansii rossiiskikh TNK—Evrosoyuz i SNG,” MEiMO, No. 2, 2006, p. 101.
27 See: V. Papava, F. Starr, op. cit.
28 See: Ibidem.
29 See: V. Papava, “The Georgian Idea of Liberalism.,” p. A5.
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year to remedy the situation. The real rate was 3-3.5 times lower (10.5 percent).”30 Georgia is facing a similar problem: it also needs the measures that large countries use; as a small country it has to employ more specific measures and enter into closer cooperation with neighboring states when it comes to investments and the sale of products.31
How Investment Activities Should Be Encouraged
Investment activities depend on many factors yet their importance and even combinations differ from country to country: the country’s size and geographic location; the economic development level and readiness for integration; the degree to which the taxation policy contributes to economic development in the financial and real sectors;32 foreign trade potential;33 investment and energy support of industrial development;34 the institutional context;35 the nation’s purchasing power; the quality and specifics of the use of human capital, etc.36
As a relatively small country Georgia cannot develop all the economic branches; it should revive some of the traditional branches that use local raw materials (the textile, footwear and leather industries as well as the construction material sector, etc.) and in the future attract local and foreign investments in new and high technologies in some of the economic spheres. Situated in different geographic and climatic zones Georgia can diversify agriculture and develop tourism.
Georgia can not only transport energy resources but also serve as a transit state for the steadily increasing East-West and North-South freight transportation. To achieve this it should develop its communication lines and set up international trade centers at transshipment points and in several border cities, which might interest business partners from other countries. Whatever the case, the world’s leading countries are already showing their interest. On 27 October, 2005, when speaking at the Subcommittee on the Middle East and Central Asia of the House International Relations Committee, Daniel Fried, Assistant Secretary of State for European and Eurasian Affairs, said: “The trade links of the ancient Silk Road need to be revitalized to provide Central Asia with greater access to the global economy, through both South Asia and Europe.”37
30 A. Neshitoi, “Neobkhodima smena prioritetov,” Ekonomist, No. 1, 2006, p. 5.
31 See: V. Burduli, “Foreign Economic Relations and Industrial Politics,” Politika, No. 3, 1999, p. 21 (in Georgian).
32 See: T. Beridze, E. Ismailov, V. Papava, Tsentral’niy Kavkaz i ekonomika Gruzii, Nurlan Publishers, Baku, 2004, pp. 168, 169.
33 See: V.G. Papava, T.A. Beridze, Ocherki politicheskoy ekonomii postkommunisticheskogo kapitalizma, Delo i Service Publishers, Moscow, 2005, pp. 172-174; E. Ismailov, V. Papava, op. cit.; V. Burduli, op. cit.
34 See: A. Abesadze, The Power-ecological Factor of Economic Development and the Macroeconomic Mechanism of the Formation of the Power Market in Georgia, Metsniereba Publishers, Tbilisi, 2004 (in Georgian).
35 See: V. Burduli, “Institutional Foundations of Structuralized Production Organization,” International Business (International Inter-university Collection of Scholarly Writings), Vol. 2, No. 1-2, Tbilisi, 2003, pp. 59-69 (in Georgian.); G. Tseretelli, V. Burduli, “The Main Principles of Institutionalism in the Sphere of Structural Organization of Production of the Post-Communist States are Indispensable,” in: Problems of the Development of Market Economy in Georgia. Proceedings of the Paata Gugushvili Institute of Economics, AS of Georgia, Vol. IV, Metsniereba Publishers, Tbilisi, 2004, pp. 51-60 (in Georgian).
36 See: R. Abesadze, “The Economic Development Factors,” in: Problems of the Development of Market Economy in Georgia. Proceedings of the Paata Gugushvili Institute of Economics, AS of Georgia, Vol. IV, pp. 68-74; R. Abesadze, R. Sarchimelia, N. Arevadze, M. Melashvili, The Economic Development and Forecasting Problems, Universal Publishers, Tbilisi, 2004 (in Georgian).
37 See: A Strategy for Central Asia, Speech by Daniel Fried, Assistant Secretary of State for European and Eurasian Affairs, at the Subcommittee on the Middle East and Central Asia of the House International Relations Committee, available at [http://www.state.gov/g/eur/rls/rm/55766.htm], 3 June, 2006.
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The Akhalkalaki-Kars railway (an agreement was signed in February 2007 in Tbilisi by the ministers of transport of Azerbaijan and Turkey and the minister of economic development of Georgia) is expected to invigorate investment activity in Georgia since it will help to establish corporate ties with the Caucasian and Central Asian countries and with the rapidly growing Turkish economy (especially its high-tech sectors). This railway will probably bring post-Soviet countries closer and add new scope to their economic relations. This means that Georgia’s advantageous situation at the West-East and North-South crossroads can help it to develop into a large center of international trade and transit communications.
In the context of the rapidly globalizing economy and the need to obey the WTO in the sphere of tariff policies, Georgia and the other Soviet successor states should achieve quality and price competitiveness in selected economic sectors. In the case of traditional commodities, this can be easily achieved through the renovation of technologies and production. In some cases this has already been done. This fully applies to some of the products of the construction materials sector, which relies on high quality local raw materials, Georgian wines and brandies, etc. Fruit and vegetables from Georgia (and from other post-Soviet republics for that matter) are much purer ecologically than those produced in certain other countries. They are in great demand on the world market. Foreign tourism, another export-oriented branch, is extremely competitive; greater investments in the tourist and related infrastructures can boost its profitability. In order to achieve competitive prices in other traditional branches and attract investments in high technologies, Georgia should pursue an adequate macroeconomic policy.
In recent years, after the Rose Revolution to be more exact, the taxation policy has been encouraging investment activities. The new Taxation Code lowered taxes (income tax was lowered to 12 percent and social tax from 32 to 20 percent), which considerably lightened the tax burden for businesses and the nation as a whole. The tax and budget system and the financial-lending and equity markets are the main state institutions in the sphere of investment activity.
I have already written above that Georgia’s banking system has become stronger; the controlling interest of several banks belongs to large and influential foreign banks; to stir up investment activity in the sphere of material production banks’ interest in long-term lending must be aroused. Today they are involved in the universalization that is going on across the world even though in some countries banks still remain divided into universal and commercial.38 Banks that can buy shares in the real sector (it would be expedient to limit their shares to 20-25 percent of the cost of the basic assets) are more interested in its successful functioning; together with shares in certain enterprises banks are acquiring instruments of control and a chance to identify the best production strategies.
Today, the American and European financial systems are drawing closer together. In the fall of 1999 the Gramm-Leach-Bliley Act opened equal access to the equity markets for commercial and investment banks.39 At the same time securities companies are being formed (albeit slowly) across continental Europe.40 I think that in Georgia the securities market should become accessible to the population (through investment institutions) even though the banking system remains dominant. This will, first, attract additional investments, second, increase people’s incomes, and third, make the nation more interested in industrial production, which will add impetus to investment activities.41
Engineering and consulting companies, as well as the structures that promote export, venture capital centers, etc., play an important role in the market economy; the globalizing economy makes
38 See: N. Shmeleva, A. Radygin, “Privatizatsia i finansovye problemy v Rossii: problemy vzaimodeystvia,” Vo-prosy ekonomiki, No. 9, 1993, pp. 70-73; O. Khmyz, “Fondovy rynok stran-chlenov Evropeyskogo soyuza,” Mirovaia ekonomika i mezhdunarodnye otnoshenia, No. 4, 1998; “Bankovskaia sistema Izraelia,” Mirovaia ekonomika i mezhd-unarodnye otnoshenia, No. 11, 1998.
39 See: B. Rubtsov, “Mirovye fondovye rynki,”Mirovaia ekonomika i mezhdunarodnye otnoshenia, No. 8, 2001, p. 39.
40 See: Ibidem.
41 See: V. Burduli, Coordination of Social and Economic Development at the Regional and Local Levels, Meridian Publishers, Tbilisi, 2006, pp. 149, 150 (in Georgian).
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them even more important. As parts of the market’s institutional system that contributes to investment activities by introducing high and other science-intensive technologies, they attract venture capital and local specialists.
An important place among the institutional and financial conditions conducive to a more active investment process belongs to a “comparatively high level of scientific development, the degree to which it is used in technologies. the high share of budget spending on fundamental and applied sciences (4 to 5 percent) and on the size of the GDP (no less than 1.5 percent), a state-supported institutional system” ensuring the development of “innovation projects. that can compete on the world markets, and setting up and using fairly large centralized and regional investment funds as the financial cornerstone of strategic investments.”42
C o n c l u s i o n
In the context of globalization, economic development in any country leads to new direct economic investments and attracts contemporary and especially high-tech productions, particularly the enterprises of transnational companies. Judging by the 2000-2004 figures, in Georgia investments in basic assets (with the exception of transport, communication, and construction) were not sufficiently high. This is explained by several factors: “the country’s own possibilities of technological renovation proved to be miserable” while the share of imported products in the structure of domestic consumption remained high. On the other hand, the state demonstrated more activity and more systemic involvement in agriculture while the stronger financial sector fortified its position in long-term lending of real production. At the same time, however, the country has not yet fully tapped the possibilities created by globalization and economic integration—its approach remains one-sided.
Further growth of investment activity and an adequate increase of real investments in the most promising branches of material production and financial sector, which supports them, call for the best possible use of the country’s geo-economic situation, further development and optimization of the system of macroeconomic regulation, as well as globalization as the factor promoting the acquisition of new technologies and licenses and attracting the high-tech production of transnational corporations. The time has come to encourage private structures engaged in distributing and tuning imported technologies and in training and retraining those mastering the new technologies, as well as organizations involved in selling domestic products at home and abroad.
: A. Seleznev, “Uslovia aktivizatsii investitsionnogo protsessa,” Ekonomist, No. 6, 2006, p. 3.
