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Georgia

Situation and cooperation

View of the Georgian capital Tbilisi

Since regaining independence in 1991, Georgia has been faced with both internal and regional challenges. The democratisation process was hampered by nepotism, corruption and electoral fraud. In order to put an end to this, young opposition activists launched the Rose Revolution in autumn 2003. This led to a peaceful change of government. Mikheil Saakashvili – who was just 35 years old at that time – was elected president. He was re-elected for a further term in 2008.

However, in the years that followed, authoritarian tendencies within the government and the growing gap between rich and poor led to popular protests on several occasions. The parliamentary elections held in October 2012 were won by the electoral alliance "Georgian Dream". Since December 2015, the country has been governed by Prime Minister Giorgi Kvirikashvili. The alliance also won the presidential elections in October 2013, when Giorgi Margvelashvili from "Georgian Dream" was elected president by a clear majority. In October 2016, another round of parliamentary elections was held, which was won by the governing alliance of parties by almost three quarters of the vote.

Since the time of the Rose Revolution, the Georgian government has made major efforts to consolidate democracy and the rule of law, achieve alignment with European legal standards, fight corruption and create a more conducive climate for investment. When President Margvelashvili assumed office in autumn 2013, some amendments to the constitution entered into force, transforming Georgia from a presidential republic into a parliamentary democracy.

A court building in Tbilisi

One of the government's goals is to enhance local self-government. In 2006, Georgia had its first-ever municipal elections. In 2010, the mayor of the capital, Tbilisi, was elected directly for the first time. In February 2014, a new law was adopted which devolved further tasks to the municipalities. During the local elections in June 2014, people were also able to directly elect the mayors of regional capitals.

Georgia is seeking partnership with western countries. The country is very interested in joining NATO and, in the longer term, accede to the EU. In 2004, the three South Caucasus republics of Georgia, Armenia and Azerbaijan were made part of the Neighbourhood Policy initiative of the European Union. In 2009, this led to the creation of the Eastern Partnership, which also includes Ukraine, Moldova and Belarus. In June 2014, the EU and Georgia signed an association and free trade agreement, which entered into force on 1 July 2016.


Tensions with Russia

Russia's support for the breakaway Georgian territories of Abkhazia and South Ossetia is putting enormous strain on the relations between Tbilisi and Moscow. In August 2008, the conflict escalated into a five-day war. Since that time, Russia and Georgia have had no diplomatic relations. A ceasefire was agreed, brokered by the European Union. A civilian monitoring mission (European Union Monitoring Mission in Georgia, EUMM) is monitoring compliance with the terms agreed.

Russia has recognised Abkhazia and South Ossetia as independent states. However, only few other countries have followed suit. The German government and the majority of the international community have condemned this step as a violation of international law. However, the Georgian government is trying to improve relations with Russia. Since 2012, trade with Russia has gradually been resumed. But the Georgian government is sticking to its strict policy of territorial integrity, a decision that has the support of its international partners. 


Social situation

One legacy of the conflict over Abkhazia and South Ossetia is the large number of internally displaced persons – more than 250,000. The refugee situation is exacerbating poverty in the country, which is already severe. According to World Bank figures, unemployment was 13.4 per cent in 2014. However, that rate does not take account of smallholders engaged in subsistence farming or of the countless day labourers, petty traders and own-account workers. In surveys, around 70 per cent of the population describe themselves as underemployed. The Human Development Index ranks Georgia 70th out of 188 countries (HDI 2015).


Economic development

Georgia: A farmer repairing a combine harvester.

The Georgian economy continues to go through a phase of fundamental transformation. Especially in the period after the Rose Revolution of 2004, the country saw dynamic economic development, with growth rates that exceeded 10 per cent at times. While the Georgian-Russian war of 2008 and the global economic and financial crisis slowed down this development, Georgia is still on a trajectory of solid growth.

The government's commitment to liberalising the economy and building a more enabling environment for private enterprise has won international recognition. In the World Bank's Doing Business Report 2017, which rates the business climate in 190 countries, Georgia ranks an impressive 16th.

However, this basically positive economic trend is having no impact on the majority of the population. Some 50 per cent of people are still employed in agriculture, producing primarily in order to meet their own needs. The development of agriculture is being hampered by inefficient land use, poor infrastructure, the low quality of processed agricultural goods and poor training. The government has therefore announced its intention to strengthen the agricultural sector and develop the downstream food processing industry.


Development potential

Landscape in Georgia

Georgia has great development potential. Its geographical location makes it an important connecting point between Europe and Asia. One major factor here is the transport of oil and gas from the Caspian region to the EU. Georgia also has its own deposits of extractive resources, such as manganese and gold. Its abundance of water and other renewable energy sources offers far-reaching potential for Georgia not only to meet its own energy requirements, but also to export energy. The country is planning to build up to 20 new hydropower plants in the coming years.

The scenic beauty of the Caucasus also harbours great potential for international tourism.


Priority areas of German cooperation with Georgia

In the field of bilateral development cooperation, Germany is Georgia's second largest bilateral partner, after the US. During the Georgian-German government negotiations in September 2015, development projects worth a total of up to 156.3 million euros were agreed. Most of this funding (up to 117.5 million euros) is being provided in the form of loans.

Cooperation with Georgia is part of the BMZ's Caucasus Initiative, which in turn has been closely aligned with the European Neighbourhood Policy. The sectoral priority areas of the Caucasus Initiative are:

  • Sustainable economic development
  • Energy and environmental protection
  • Democracy, municipal development and judicial reform

Sustainable economic development

An employee of a wine testing lab in Tbilisi is testing the quality of Georgian wines.

Following the disintegration of the Soviet Union, industry in Georgia was in a state of collapse. Economic recovery was chiefly led by micro, small and medium-sized enterprises (MSMEs). Today, they account for 90 per cent of all businesses in Georgia. Yet many start-ups initially lacked seed capital. Georgian banks tended to regard all MSMEs as not creditworthy.

ProCredit Bank (PCB) Georgia, which specialises in financial products for MSMEs, was established with support from KfW Development Bank. It now has 58 branches across the country and has become Georgia's third-largest bank. KfW also supports the provision of agricultural loans to small farms and subsistence farmers.

At the regional level, KfW is supporting small and medium-sized enterprises (SMEs), as well as housing construction, through the European Fund for Southeast Europe (EFSE).

One key aspect of Georgia's economic development is cooperation with neighbouring countries in the Caucasus region. In order to facilitate the movement of goods and services, Germany is supporting the removal of trade barriers. With a view to promoting exports to the European market, Technical Cooperation projects are also supporting measures to enhance quality assurance, bring production into line with international standards and improve the marketing of Georgian products. In parallel, German experts are providing advice to governmental and private education institutions in order to improve basic and continuing training for skilled personnel and to bring training more closely into line with the needs of the private sector. The focus is on advice for the tourism, wine and construction industries.


Energy and environmental protection

Agricultural land in Georgia

With German support, the capacity of the Georgian energy sector has been increased significantly in recent years. Cooperation is now focused on boosting energy efficiency and promoting renewable energies.

The Black Sea Energy Transmission System was founded in April 2010. It is being co-financed by Germany, and supports efforts by Georgia and its neighbours to link up their national power grids and connect them with Europe.

Georgia has major potential in the fields of hydropower and geothermal power. In order to strengthen the use of renewable energy, Germany is supporting, inter alia, the construction of small hydropower plants. Georgia now generates as much as 90 per cent of its electricity from hydropower.

Thanks to the extraordinary diversity of flora and fauna in the region, the Caucasus is one of 35 global biodiversity hotspots. Under a regional nature conservation programme, the three countries of the South Caucasus – Georgia, Azerbaijan and Armenia – are receiving support for the creation of national parks and for linking such parks across borders. A Transboundary Joint Secretariat (TJS) has been set up to provide advice to governments and national park administrations and to secure the exchange of knowledge among the three countries. Germany is supporting the TJS.

In order to ensure sustainable natural resource management, Germany has assisted Georgia in devoting more attention to environmental protection and to the significance of ecosystem services for the country's development. As a result, environmental aspects are now taken into account in major planning processes, and urgently needed environmental legislation is being developed or amended.


Democracy, municipal development and judicial reform

In Georgia, the development of democratic and market-based institutions has advanced significantly in recent years. Through development cooperation, Germany is seeking to help accelerate this process at the local, national and regional levels. One particular focus of these activities is on the inclusion of ethnic minorities and participation by women. The BMZ and its implementing organisations are particularly active in the following areas:

  • Reform of the legal and judicial system and of public financial management
  • Promotion of transparent and efficient administration
  • Municipal development (improving governance and local government services, establishing citizens' offices, modernising infrastructure including water supply/sanitation and solid waste management, establishing twin town arrangements)

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