Economic readiness of Georgia for competition within the EU, according to a report
The EU-Bound Export Struggle: Challenges Facing Georgian Businesses
With a fresh study from the European Union and United Nations, we're taking a closer look at Georgia's economic sectors and their potential for increased exports to Europe. This comes at a time when many Georgians are questioning the government's relationship with the EU.
Entitled "Georgia's Economy: Sectors with High Growth and Export Potential," the report paints a picture of an economy chomping at the bit to do business with Europe. However, it also reveals that Georgian companies continue to miss out on lucrative opportunities due to various challenges.
The report singles out five sectors with promising export potential: wine & beverage, transport, telecoms/IT, mining, and clothes manufacturing. But despite the agreement signed in 2014, many Georgian exporters, including wine producers, face obstacles in penetrating the desirable European market.
Export Obstacles
The metaphorical mountains blocking the way to the EU for Georgian exports mainly revolve around certification, quality, and a lack of information. "The main challenges hindering export growth are associated with obtaining the necessary certifications and meeting EU quality and standard requirements for specific products," the report states, adding that a lack of information on export potential and procedures, and insufficient production capacity for export, are also significant hurdles.
According to Davit Keshelava, head of macroeconomic policy research at the International School of Economics in Tbilisi, access to finance is a significant issue. "The major source of funding is bank loans, which are quite expensive," he told Eurasianet.
The Government's Role
The Georgian Dream party-controlled government adds an element of uncertainty to the equation. Its recent geopolitical pivot away from the West, marked by the adoption of illiberal legislation in 2024, has angered the EU and US. While Georgia's constitutionally mandated EU accession quest has stagnated, officials in Brussels and Washington have stated that Georgian Dream needs to reverse its current policy direction for the country's EU and NATO membership aspirations to be rekindled. Public opinion surveys show strong public support for Georgia's integration with Western institutions.
The Future Outlook
Spring's initial signs showed that Georgian Dream's policy shift away from the West might negatively impact the economy. However, the full economic impact of this pivot remains uncertain, with pivotal parliamentary elections looming in October. If elected officials continue to project stability,Georgia's strong GDP growth during the first half of 2024 could help the country weather this storm.
Sector-Specific Challenges
To succeed in the EU market, Georgian companies must tackle unique challenges in their respective sectors:
Wine & Beverage
- Ensuring compliance with EU quality, safety, and labeling standards can prove difficult for Georgian wine producers.
- A competitive European market requires Georgian wines to differentiate themselves through superior quality and clever marketing.
Transport
- Infrastructure development, such as roads and logistics facilities, may not be advanced enough to efficiently handle increased trade volumes.
- Compliance with complex EU transport regulations, including customs procedures and safety standards, is no small task.
Telecoms/IT
- Expanding digital infrastructure to support IT services in Europe can be costly. Reliable data centers and high-speed connectivity are essential.
- Georgia's IT companies must constantly innovate to stay competitive in the EU market.
Mining
- Strict environmental and safety regulations in the EU can be challenging for mining operations.
- Gaining access to the EU market for mining products can prove difficult due to established supply chains and stiff competition.
Cloth Manufacturing
- Compliance with EU labor standards and regulations can raise production costs for Georgian manufacturers.
- Securing market share in the European textile market is challenging due to dominance by established producers.
Georgian companies must focus on quality, infrastructure investments, and marketing to succeed in the EU market. Building strong relationships with EU partners and ensuring compliance with EU regulations are also crucial for their success.
- The report highlights that obtaining necessary certifications, meeting EU quality and standard requirements, and having insufficient information on export potential and procedures are major challenges for Georgian businesses seeking to increase exports to Europe.
- According to Davit Keshelava, access to finance is a significant issue for Georgian companies, with bank loans being quite expensive.
- The Georgian Dream party-controlled government's geopolitical pivot away from the West and the adoption of illiberal legislation in 2024 have angered the EU and US, creating an element of uncertainty for the future of Georgia's EU membership aspirations.
- To succeed in the EU market, Georgian companies in sectors such as wine & beverage, transport, telecoms/IT, mining, and clothes manufacturing must tackle unique challenges, including complying with EU quality, safety, and labeling standards, developing infrastructure, constantly innovating, adhering to environmental and safety regulations, and securing market share.
