Despite the government’s articulated policy and the priority given to infrastructure rehabilitation, road construction in Georgia is experiencing delays.
July 26, 2019 - Kaha Baindurashvili - Articles and Commentary
On June 21st 2019, Russia imposed economic sanctions on Georgia, effectively forbidding Russian tourists to visit Georgia. There are different calculations regarding how much it may cost the Georgian economy; the TBC Bank estimated losses within 200 million US dollars, which is in line with the central bank of Georgia’s calculations at 200-300 million US dollars. The government’s forecast is far less conservative. Natia Turnava, the Minister of Economy and Sustainable Development, echoed the staggering estimations by the Georgia’s Federation of Hotels and Restaurants, saying “losses could be around 1 billion US dollars. This could slow down Georgia’s real GDP growth by more than 2 per cent.”
Only a few days later, Russo-Georgian relations experienced another round of escalation. The Russian State Duma proposed new sanctions that would effectively ban all Georgian exports to Russia as well as money-transfers to Georgia; if implemented, it could cost an additional 1 billion US dollars for the Georgian economy.
Different actors may use different methodologies to assess the Russian embargo; however, everyone agrees that Georgia needs to diversify more and do a better job of leveraging free trade possibilities with the European Union to increase economic competitiveness. In 2014, Georgia signed a free trade agreement with the EU, and it enjoys free trade with another economic giant since signing a deal with China in 2018. Yet, Georgian businesses are not enabled to fully utilise these opportunities.
In 2018, the Global Competitiveness Report of the World Economic Forum (WEF) ranked Georgia as 66th out of 140. Among other deficiencies, Georgia has problems with the business “enabling environment” and, in particular, with infrastructure. The condition of the roads are not satisfactory, according to the WEF assessment. In the Global Competitiveness Index’s Roads quality sub-component, Georgia occupies the 80th place out of 140 countries. Azerbaijan is much farther ahead in 34th place and Armenia lags behind at 85th. Other countries with similar communist pasts and developmental paths are placed in such a way: Slovakia in 65th place, Estonia in 38th, Turkey in 33rd, Bulgaria in 90th, Ukraine in 123rd, and Russia in 104th place.
Despite the government’s articulated policy and the priority given to infrastructure rehabilitation, road construction is experiencing delays. In 2016, the Prime Minister of Georgia, Giorgi Kvirikashvili, promised to finish the construction of 800 km of roads by 2020. Only 67 km has been finished, according to the Parliamentary debates in Tbilisi. To catch up with the initial plan, the government will have to build over 500 km of highway in the next year. This seems to be an impossible feat, given that so far, the government has only been capable of building an average of 20 km of highway a year.
One of the ways how roads contribute to the economic development is rather straightforward. They provide market access to the population and businesses have access to their desirable markets abroad or within the country. To be more precise, it gives access to the seaports for cargo transportation and to the airports to provide travel and tourism opportunities.
People were aware of the benefits of the roads even before Christ was born. The Middle East to India trade route “Royal Road” became a backbone of the Persian Civilisation; it is one of the oldest, well-documented highways in human history and dates back to the 5th century BC. Romans perfected them. Their roads became the eponyms of modern highways. Romans pioneered a concept of bypassing less important towns and ignoring the geographical barriers overcoming them through architectural solutions to achieve the shortest connections. Romans constructed the first road covering 200 km in 312 BC, and after that, they managed to build 120,000 km.
Next fame to the roads was brought by the Chinese, when in 130 BC, Han officially opened trade with the west. Since that time, until its role diminished, the Silk Road was the largest interconnected road infrastructure in the world. Georgia was among the beneficiaries of the Silk Road. Mtskheta, and later Tbilisi, was a trade and transport hub of regional importance and connected to the greater Silk Road corridors passing through the South Caucasus.
Nowadays, the role of a highway is far more than it was in ancient times. It not only allows for trade; the World Bank examined the population density of Georgia in its “Economic Role of Major Cities”. It concluded that “population density is highest in municipalities through which the East-West highway runs. Most of these areas have density exceeding the national average of 78 people per square km. While this is not particularly dense, many municipalities have densities of less than 50, with 10 municipalities having less than 20”. Poor connectivity is one of the reasons why some parts of Georgia, especially in the mountainous, are becoming depopulated.
Roads are necessary to develop for any part of economy. No enterprise or particular geographic location can succeed without roads. Better roads make it easier to connect. It makes connecting cheaper; logistical costs are lower in countries with developed infrastructure, therefore making commerce more profitable. Transportation routes are chosen by pragmatic considerations due to their quality and duration; better quality and more direct routes attract more goods and people, and that is what Georgia needs to urgently pursue.
Kaha Baindurashvili is a research fellow at the New Europe College in Bucharest and the Former Minister of Finance of Georgia (2009-2011). He writes for different publications and covers political economic issues in the Eastern Europe and Central Asian region.