Georgia’s agriculture financial support on the modern stage

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Ivane Javakhishvili Tbilisi State University Press
Paper covers modern state of agriculture industry of Georgia, scale and sources of funding. Local practices are compared with other sectors of national economy and similar indicators of leading countries of the world. Agriculture in Georgia is one of the weakest points of the national economy. Irrespective of the fact that it employs over 40 percent of the total number of people employed in the national economy, its share of Gross Domestic Product (GDP) is way below and has not exceeded 8-9 percent in recent years. Share of agriculture in the output of the national economy is a mere 7.1 percent. Its share in the turnover of the business sector is only 0.6 percent, while 1.2 percent of its output. Labour productivity of agriculture in Georgia is 8.6 mes less than in other sectors of the economy. More vivid is the slowdown in contrast with leading countries of the world. For instance, 22 mes less output is made per employed person in Georgia compared to the European Union (EU). Low level of labour effectiveness, income and ultimate welfare in reference with other sectors of the economy is predominantly caused by the weaknesses in the material-technical base of the sector, poor provision of equipment and critically low level of modern technologies and scientific achievements. Current labour productivity in the agriculture sector of Georgia is at 38-40 percent of what existed back in 1980’s. Low labour productivity in the agriculture sector of Georgia is reflected in need to import growing volumes of food and agriculture products. Average annual negative balance between the export and import of food and agriculture products in 2011-2018 amounted 462.4 MLN GEL. Agriculture is lagging behind in Georgia due to the lack of finance, among other key factors. This reason may be further broken down by its own components. These are the potentially credit resources (to be drawn from commercial banks), financial support to be provided by the state and FDI. Irrespective of recent increase in absolute numbers, each of them falls below the level required resources and poor effectiveness of disposable income utilization. Only in recent 9 years commercial banks of Georgia has collectively issued 89.8 BLN GEL in loans to resident legal entities in national and foreign currencies for all types of activities. Out of the quoted amount, only 1.7 BLN GEL (1.9 percent) was aimed for agriculture. By the end of 2018 total amount of exposure of legal and physical entities of Georgia towards commercial banks was almost 25.5 BLN GEL, out of which 0.4 BLN GEL (1.60 percent) was owned in the agriculture sector. High cost of credit resources and risky nature of the economic activity are among the factors leading to the significant restriction of a wide use of credit resources in the agriculture sector of Georgia. State has been actively supporting the agriculture sector of the country. In 2013-2019 State Budget allocations to this particular sector of the economy exceeded 4.56 BLN GEL. In 2019 earmarking from the State Budget of Georgia will reach 2.2 percent, similar to the previous year. State engagement in recent years has been witnessed in such supportive projects of agriculture, as Produce in Georgia, Plant in Georgia, Tea Plantation Rehabilitation Program, Agriculture Production Facilitation Program, Concessional Agriculture Lending and others. Ministry of Agriculture of Georgia has been implementing seven concessional projects since 2013, out of which one is an interest-free in kind commodity lending for small-hold farmers, while the other five – low interest-bearing agriculture loans (for medium to large farmers for working capital, fixed assets and technologies required in the agriculture production; grape processing and exporting companies; supplemented with grant financing for agriculture processing plants) and one – concessional leasing for agriculture. In line with a Report released by the Ministry of Agriculture of Georgia, investments in the volume of 144.7 MLN USD have been made in 2013-2017, out of which 77.6 MLN USD were made by beneficiaries, 60.4 MLN USD – funding obtained through concessional agriculture lending and 6.7 MLN USD – grant financing. In addition, state funding of agriculture sector still makes Georgia to lag behind the leading countries of the world. Namely, it does not exceed 0.55 percent of GDP in Georgia, while it is 1 percent in USA, 1.3 percent – in EU and 1.4 percent – in Japan. These indicators viewed as per capita values produces the following numbers: 21 USD in Georgia, 143 USD in USA, 208 USD in EU and 375 USD in Japan. Share of FDI in the agriculture sector of Georgia is extremely low. Average annual volume of FDI to the agriculture sector of the country in recent dozen of years has amounted only about 30 MLN USD, which is absolutely insufficient for the development of technically, technologically and organization-wise retarded sector. As for the insurance of agriculture as the most important component of sustainable development of the sector, it is further more unfavourable. For instance, private insurance companies are gradually entering the market in Georgia with such offerings as crop insurance (grain, wheat and corn), fruit insurance (apple, pear) and citrus insurance (tangerine), vine care, along with potato, cattle and hazelnut plantation insurance. However, 9/10 of agriculture insurance is still falling within the category of state subsidy, which is not the best solution to the dilemma. Insurance premium in Georgia in reference with GDP of the country amounted only 1.2 percent in 2017. With this indicator Georgia falls behind the average international level by 5 mes (respectively 1.2 and 6.13 percent), while Georgia lags behind them by only 2 mes in terms of its economic development. Overall, if we look at the funding of agriculture by all types of sources, we will find out that only about 2/5 falls within the State Budget allocations; half of the required resources is mobilized from commercial bank loans as a rule and 1/10 – through FDI. As of now, each GEL spent in agriculture sector of Georgia gets a 6 GEL return with value added and about 9 GEL in terms of total production. Dynamic path of development in the agriculture sector of Georgia lays through reduced ratio of human labour force and increased funding.
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Agriculture; Finance; Lending; Foreign Direct Investment (FDI)
Economics and Business, №1, 2019, pp. 39-54