Construction Sector in Georgia

In 2014-2017, construction sector has been the fastest growing sector (57%) of Georgia’s economy. On the one hand, fast growth of construction sector strengthens Georgia’s economy and creates additional employment opportunities, but, on the other hand, this process causes certain problems. Reasons for these problems are high concentration of constructions (80%) only in Tbilisi and Batumi, weak regulations and bad practice of issuance of construction permits.

In the first half of 2018, construction sector decreased by 0.3. Decreased number of permits issued for increase of K2 coefficient caused this reduction. As a result, the share of construction sector in Georgia’s economy has decreased from 9.3% (2017) to 8.6%.

71 600 contracted employees work in GEL 1 461 is an average nominal monthly salary in construction sector and this figure is only behind average salary in finance sector. Fast growth of construction sector leads to higher salaries. Since 2010, an average nominal salary has doubled in this sector.construction sector, which is 9.6% of contracted employees working in all sectors.

In July 2018, the Parliament of Georgia adopted . In parallel to enforcing this Code, currently existing regulatory documents will lose their power. The Code mostly has a general character and defines the sphere of regulation. After adoption of this Code the Government should adopt 14 by-laws. The Code will be in full effect from 1 January 2022. However, local municipalities will have time to develop their plans until 1 January 2028.new Construction Code

According to the World Bank’s Doing Business Index, Georgia ranked #27 in the world in terms of construction regulations. The World Bank considers quality control of constructions the weakest sides of Georgia.

Zoning agreements frequently cause In the end of 2017, Tbilisi City Hall’s zoning council was abolished and its functions were transferred to Urban Development Service of Tbilisi City Hall. As a result, number of permits issued for increase of K2 coefficient decreased. In the first half of 2018, only 53 permits were issued.so called chaotic development of Tbilisi.

In 2014-2016, compared with 2009-2013, permits for Moreover, a possibility to raise K2 coefficient increases corruption risks, which is directly reflected in connections of the members of Tbilisi City Hall zoning council with construction business and politicians.increase of K2 coefficient has increased by 54%.

During 2006-2016, construction permits for This means that construction area will significantly increase in future, which is good if not one issue: 51% of construction permits are issued in Tbilisi and 28% - in Adjara.building of 63.4 million m2 have been issued.

According to the census conducted in 2014, Tbilisi was the most densely populated territory in Georgia with 2 199 persons living on one km2 on average. 79% of construction permits were issued for living purpose.

There are many large, medium and small enterprises in There are 43 large, 281 medium and 6 620 small enterprises in this sector. Although 43% of employees work in small enterprises, salaries are two times higher in large enterprises.construction sector. There are no signs of monopoly or oligopoly in construction market.

Real estate sales have a growth trend. In 2017, sales increased by 11%. The highest growth rate (34%) was in Adjara, mainly in Batumi.

In 54% of ongoing constructions are located in these districts too.Tbilisi 43% of real estate sales are concentrated in Saburtalo and Vake.

During the last three years, real estate prices have been stable In Tbilisi. The prices in USD have increased only by 1.6% and by 7% - in GEL. In Tbilisi the most expensive real estate (USD 1 124 per 1 m2) is in Mtatsminda district and the cheapest one is in Samgori (USD 547).

Another interesting issue is In 2017, 63% of public procurement was spent on construction works.participation of large construction companies in public procurement and their links with politics, including donations made in favor of political parties.

Companies connected with political donors often win public contracts through Before 2012, all large construction companies, except those that were linked with Bidzina Ivanishvili, have been donating to the UNM. Since 2012, after the change of government, construction companies have not donated anything to the UNM. However, some of them became donors of the GD - new ruling party. During 2011-2018, construction companies, which had a status of large enterprise as of 1 November 2018, have donated up to GEL 2 million to various political parties. During the same period, these companies have received GEL 700 million from public tenders and GEL 90 million – through simplified public procurement.simplified procurement process. This contains corruption risks.
(TI Georgia. Author Otar Namchavadze. Research supervisor: Levan Natroshvili)