The breakup of the Soviet Union severely dislocated the economy of Georgia by disrupting established trade patterns. Three separate armed conflicts and several years of political instability created even more serious damage. The country’s gross domestic product (GDP), which measures the total value of goods and services produced, declined between 1990 and 1995 by the greatest amount of any former Soviet republic. Georgia became increasingly dependent upon foreign financial and humanitarian aid. But beginning in the mid-1990s, increasing political stability allowed Georgia to make significant progress toward renewing economic growth.
Several attributes brighten Georgia’s long-term economic prospects. The country’s warm climate and position on the eastern shore of the Black Sea make the country suitable for agricultural and tourism development. It also straddles the best transportation routes across the Caucasus Mountains. Abundant rivers flowing from the mountains provide water for crop irrigation and hydroelectric production.
The private sector was active in Georgia even before the end of the Soviet era, with a thriving black market in which everything from bread to cars was bought and bartered illegally. The government adopted a privatization law shortly after independence but delayed its full implementation until the return of political stability in the mid-1990s. While intending to transform state-managed enterprises into profitable companies, the government retains a share of most operations.
Georgia’s GDP in 2000 was $3.03 billion. Agriculture, including forestry and fishing, contributed 32 percent of the total. Industry, including manufacturing, mining, and construction, produced 13 percent of goods. Services, which include trade and financial activities, accounted for 55 percent of the GDP. However, a large portion of the Georgian economy is in the so-called informal sector and outside of usual economic reporting.
Agriculture is an important feature of the Georgian economy, and the country has one of the most diverse agricultural sectors of any of the former Soviet republics. The lowlands of the west have a subtropical climate and produce tea and citrus fruits, while grapes and deciduous fruits grow in the uplands. The country’s long growing season allows it to grow almost any crop, and Georgia also produces large amounts of vegetables and grains. Draining of swampy coastal lowlands around the mouth of the Rioni River added much fertile land. Livestock raising is also important; milk from cows and goats is used to make cheese. The agricultural sector provides 49 percent of employment.
The processing of agricultural goods is the most significant part of Georgia’s industrial activity. The country also gained importance as an industrial region because of the abundance of mineral deposits (manganese, iron ore, molybdenum, and gold) and fuel (coal and petroleum). Marble, alabaster, and diatomaceous shale are also mined. However, industries focused on machinery production and metalworking declined in the 1990s. During the Soviet era several concerns produced military goods, giving the country a highly skilled industrial workforce. The industrial sector provided 9 percent of employment in 1998.
During the Soviet era the Georgian Black Sea coast was a favorite vacation area for residents of the Soviet bloc. Visitation to the resorts nearly ceased in the early 1990s with the outbreak of armed conflict and economic disintegration. With the return of stability, the region again has the potential of becoming a tourist destination.
Energy shortages continued to hamper the Georgian economy in the mid-1990s. The government rationed household electricity and heating fuel during winters, power outages were frequent and long lasting, and many industries were closed due to fuel shortages. Hydroelectric power accounted for 79.62 percent of power generation in 1999, and its share was rising as plants burning fossil fuels stood idle because the country was unable to pay for gas and oil imports.
At the time of independence nearly all of Georgia’s trade was with other countries of the former Soviet Union. Since then Georgia has endeavored to establish new trading relationships. Today Turkey was its principal partner, accounting for more than a quarter of total trade. Other leading purchasers of Georgia’s exports are Russia, Armenia, Azerbaijan, Turkmenistan, and Ukraine. Chief sources for imports, in addition to Turkey, are Russia, Azerbaijan, Turkmenistan, Romania, Bulgaria, and the United Kingdom. Leading exports are metal products, coffee, tea, and beverages; chief imports are energy and food products. In April 1999 a pipeline that carries oil from Baku, Azerbaijan, to Supsa (on Georgia’s Black Sea coast) was opened. Foreign tankers transport the oil from Supsa westward to Turkey and Europe.
Aided by the International Monetary Fund (IMF), the government reduced inflation from 62 percent per month in 1994 to less than 1 percent per month in 1997. In September 1995 the Georgian government introduced a new currency, the lari, in an attempt to stabilize the economy and improve living conditions (1.26 lari equal U.S.$1; 1996). The lari replaced the Georgian coupon, a provisional currency that had declined dramatically in value since being issued in July 1993.