Georgian exports decrease

The Georgian trade imbalance is getting worse. Import exceeds export several fold. The only solution to this problem will be to facilitate very substantially the development of local production, which has not occurred so far.

In 2004 trade turnover was around USD 2.5 billion, of which USD 647 million was export and almost USD 1.846 billion import, creating a negative balance of almost USD 1.2 billion. In 2007 trade turnover was almost USD 6.5 billion, export being USD 1.233 billion and import over USD 5 billion, so the negative trade balance was almost 4 billion. In 2008 trade turnover was over USD 7.55 billion, but of this amount export was only USD 1.5 billion, import being more than USD 6 billion.

Last year’s August war and the world economic crisis have considerably damaged the export-import balance in Georgia. In January-April 2009 total trade turnover was just over USD 1.5 billion. Only USD 300 million of this was accounted for by exports and USD 1.28 billion by imports, so the negative trade balance is almost USD 1 billion.

Economic analysts think that the increase in the deficit has been created by the zero customs tariff on certain imported goods. Irakli Iashvili thinks that Georgia encourages imports but not local production. The only sector in which Georgia is successfully exporting is car re-export to Armenia and Azerbaijan. The authorities have signed several agreements on stimulating export production in Georgia but no results of these are yet visible.

Another difficulty is the GEL rate. Today investments have seriously slowed and therefore currency reserves have also diminished. Money transfers from foreign countries to Georgia have also decreased, so the GEL’s rate stability is under threat. The rate is only currently being maintained by the external support allotted to Georgia after the August Russian aggression.

In a market economy a devaluation of the local currency usually facilitates an increase in exports. Under normal conditions this would result in an improvement of the trade balance, but as analyst Tata Alshibaia says this rule does not apply in Georgia because imports occupy the biggest share of its market. As the country does not produce export production there is little prospect of local products replacing imported ones. Therefore imported products become more expensive, and this harms the population.