Download Introduction Rapid Economic Growth – Empirical Overview

Otar Nadaraia
Otar Gorgodze
David Utiashvili
Nino Sharumashvili1
Economic Growth and Structural Transformation
Introduction
Achieving a high rate of economic growth constitutes a basic pillar of success for every country.
However, only few countries manage to accomplish the aforementioned objective. The purpose of the
present paper is to briefly discuss the experience of rapidly growing countries in order to identify
possible similarities, as well as to present theoretical arguments for the activities that encourage rapid
economic growth and the applicability of identified approaches to Georgia.
Rapid Economic Growth – Empirical Overview
A comparative analysis of countries’ growth during the past half-century demonstrates that
Asian countries, such as South Korea, Singapore, Thailand, Japan, China and Indonesia represent the
fastest growing states of the world (International Monetary Fund, 2013). It is important to examine
what common characteristics these countries share in terms of economic development.
Diagram 1. Average annual percentile growth of GDP per capita (1960-2010).
1
The authors would like to express special gratitude to Mr. Giorgi Kadagidze, Governor of the National Bank of
Georgia, for contributing to the development of the idea of the present article.
The first common characteristic is a high level of diversification of produced goods. According to
the research conducted by Imbs and Wacziar, rapidly growing countries are characterized by inverted
“U”-shaped trend of sectorial concentration in time (diagram 2).
Diagram 2: Trend of sectorial concentration in time for rapidly-growing countries.
During the preliminary stages of development, economy encompasses only a short list of
industries. As economy develops, diversification increases and then, decreases again. The latter is the
result of experimenting with different industries with the goal of identifying competitive advantages.
After discovering competitive fields, countries tend to specialize again.2
It is interesting to examine what encourages such diversification. In order to answer this
question, it is appropriate to analyze the past decade’s largest export categories of the aforementioned
rapidly-growing economies. For these countries, virtually every sector is non-traditional. A detailed
study of the countries’ development shows that the discovery and the growth of almost all of these
domains were greatly facilitated by the deliberate politics of encouragement adopted by the
government. It is noteworthy that the composition of export products from the aforementioned Asian
countries has been historically characterized by high levels of dynamism; specifically, although economic
structure is presently dominated by mechanical engineering and consumer electronics, throughout
1960s and 1980s the certain leaders were various diversified products, mostly pertaining to heavy and
light industry, as these were the sectors prioritized by the states (Agosin, 2003).
Table 1: Leading export products of rapidly-growing countries (except for natural resources)
China
Electronics
Singapor
e
Indonesi
a
Malaysia
Semi-conductors Petroleumbased products
Microchips
Electronics
2
Vegetable oils
Textiles
electronics
Furniture
Computer
technology
Semiconductors
Printing
Automobiles/par
ts
Chemicals
shipbuilding
Metal products
Furniture
Textiles
Automobiles/par
Machinery parts
For example, had South Korea not chosen the road of diversification and followed its traditional competitive
advantage, today it would still be a rice-producing country, and not the world leader in the production of
smartphones.
South
Korea
Japan
Vietnam
Thailand
Ireland
Portugal
Electronics
Automobiles/par
ts
Textiles
Automobiles/par
ts
Organic
Chemicals
Automobiles/par
ts
Automobiles/par
ts
Electronics
Electronics
Computer
Technology
Medications
Petroleumbased products
appliances
Steamers/shi
ps
Metal
products
Furniture
Petroleumbased
products
Medical
technology
Electronics
Steamers/Ships
ts
Petroleumbased products
Chemicals
Fruits/grains
Metal products
Meat products
Fruits/grains
Perfumery
Computer
Technology
Textiles
Metal products
Metal products
To illustrate, in Singapore, the development of the aforementioned sectors was based on a
vigorous government support. Despite the scarcity of natural resources, the economy of the country
proved itself successful by developing numerous branches. For that reason, Singapore is considered to
be a classic example state of industrial policy and private-public partnership. The state played an active
role in stimulating the citizens, private sectors, and investors by providing different sectorial and tax
exemptions. In order to achieve its economic objectives, the government created special agencies which
actively participated in encouraging the development of particular sectors. Even today, the state
continues to exert indirect influence on the private sector through the public investment company
“Temasek,” which, through co-investment, enters start-up businesses and sells its shares after the
initiatives become successful and the private sector gets interested in independent ownership. The state
also played an active role in improving professional skills of the workforce. On an advanced level of
development, when the country graduated to the long-term economic planning, comprehensive training
of the personnel preceded the expansion of innovative industrial activities. During the said period, with
the goal of obtaining funds for investments, the state created a mandatory retirement system, which
greatly facilitated the growth of investments in the country. Even today, Singapore is stands out due to
its high levels of savings and investing rates.
South Korea represents another successful example of government intervention. It must be
noted that in order to finance industrial policy, the country not only chose the policy of domestic
savings, but also actively attracted foreign funds. The state supported the development of different
sectors of economy through various mechanisms, such as cheap loans, protection of strategic sectors,
regulations of market entry, tax incentives, and more. One of the examples of the industrial policy in
South Korea is the development of metallurgy industry. The state-controlled company, unsuccessful in
its initial stages, replaced import and during the latter stages, became one of the most successful
enterprises in the world, which serves as a vivid illustration of the “Infant Industry” argument.
State industrial policy played an immense role in the development of Japan as well. During the
latter half of the 19th century, the government began creating so-called “pilot companies” in different
sectors, the privatization of which was accomplished later, at a very low cost. The state offered an
extensive support for different industrial activities through direct subsidies, tax exemptions, import
restrictions, subsidized credits, and, in some cases, encouragement of cartels and monopolies. The state,
in accordance with the agenda it devised, was sending important signals to the public and such
messages often automatically solved the “market failure” problem.
The growth of Irish economy during the 1950s was greatly fostered by the advancement of
industrial policy. Initially, the attention was concentrated on the attraction of direct foreign investment.
Later, from 1970s, sectorial selection began. Industrial Development Agency identified the domains of
pharmaceutics and electronic appliances as the fields with high growth potential. The primary export
market was also identified – The United States, and, consequently, important measures were taken in
this country to attract the interest of investors. The companies were offered a range of support
mechanisms, including 50% financing of equipment cost in form of grants. Soon the clusters were
created, and other associated sectors were also developed – the production of perfumery, and
chemical and medical technology. In just 20 years these products became Ireland’s chief export goods.
Malaysian industrial policy is also characterized by dynamism. In 1950s, during the initial
stages, imports substitution was considered a chief objective for the country, and relevant
instruments (tax, tariff) were utilized in order to facilitate the polity of sectorial support. This
approach did not succeed because of its concentration only on local, and not on export market –
companies’ motivation and efficiency were reduced. Later, the focus shifted to export support; certain
sectors were selected - mostly industrial fields that were using local resources extensively. The state
actively participated in the financing of the companies. Import was successfully replaced and export
rate increased, but available human and other resources were assessed too optimistically and,
consequently, a number of sub-sectors became unprofitable. By the end of 1980s, such policies were
reexamined and it was planned to concentrate on the introduction of modern technology and on the
creation of the clusters of high-tech electronics. The role of the government was now more
pronounced in the domains of relevant research support and investments in human resources.
Despite frequent missteps, this lengthy process of selection proved productive and a large part of
identified competitive products today generates Malaysia’s basic export revenues.
Successful examples can be found in other parts of the world. These examples include: salmon
industry in Chile, aviation industry in Brazil3, Silicon Valley Industrial Center in the United States
and more.
The importance of industrial polity for gaining competitive advantage is further confirmed by
empirical research conducted by McKinsey Global Institute. Traditional aggregated economic analysis
frequently fails to pay attention to the barriers that hinder the growth of competitiveness. Thus,
3
Embraer, previously owned by the Brazilian government in 1969-94, is the third largest aviation conglomerate
after Boeing and Airbus.
relying on the study of micro examples, McKinsey analyzes factors that define effectiveness of policy,
and based on the instances of different countries and sectors, singles out common tendencies.
One of the most important results of the research is the disclosure of an empirical fact that
different sectors require diverse economic policies for success. In order to single out relatively similar
sectors in terms of economic policy, McKinsey suggests considering two basic criteria: the
participation of the sector in foreign trade, and diversity of products. An example of aforementioned
taxonomy is offered in Diagram 3.
Diagram 3: Classification of sectors based on the level of differentiation and tradability by
McKinsey Global Institute
For example, “laissez-faire” type of policies proves itself successful in the sector of local
service industry, while development of resource intensive industries is facilitated by the high-level
involvement of the government.
Apart from providing favorable macroeconomic environment, it is often needed to identify
and solve those micro problems which hinder economic growth. McKinsey concludes that choosing
the right industrial policy is the deciding factor that influences the productivity and competitiveness
of the sector.
Hence, it is clear from the empirical overview that the common characteristic of rapidlygrowing economies is the support of economic diversification through dynamic state economic
policy. It is important to explain the latter through theoretical arguments.
Rapid Economic Growth – Theoretical Arguments
According to Rodrik (Rodrik 2013), a country’s economic growth can rely on two foundations
(if we exclude natural resources). The first one is net accumulation of fundamental capabilities. In
this case, human and physical capital, institutions and infrastructure are developed, which is a
lengthy and costly process. The factors are interrelated and their full disclosure occurs when they are
sufficiently accumulated. The second foundation is structural transformation, when novel, highly
productive industries are created, and the workforce is transferred from low-productivity to highproductivity activities (Romer, n.d.)4. This process is relatively fast, and every so-called “economic
miracle” is the result of structural transformation, when growth occurs within the context of low
fundamental capabilities. While the first foundation of economic growth necessitates large-scale and
all-inclusive investments, for the second foundation, that is, structural transformation - fewer, but
purposeful investments are required (for example, in order to compete with the European company,
it is not imperative to have the same institutional quality).
Structural transformation compensates for the weaknesses of those fundamental factors which
characterize developing countries. As the economy develops, the difference between these two paths
disappears and fundamental factor stays the main determinant of economic growth. Lastly, if
fundamental factors are not accumulated on the advanced level of economic development, only
structural transformation will not help achieve economic growth.
The prerequisite for the government’s involvement in achieving economic structural
transformation must be the presence of market failure. According to Rodrik, the arguments for
intervention may be divided into two following categories:

The problem of cost discovery by free market;

Addressing the coordination failures, as the free market does not normally accomplish this
task.
4
Paul Romer, who developed the endogenous economic growth models, brings in the example of a housewife in
order to illustrate the fundamental principle of economic growth in familiar terms: to ameliorate the quality of
dinner through improving the quality of one dish requires strenuous effort (enhance cooking skills, acquire better
appliances for the kitchen, buy high quality expensive products), while it would be much easier to prepare a
different dish with a new recipe, and improve the quality of dinner through diversification.
Cost discovery
Uncertainty of cost structure represents an important barrier for investing in innovative
activities. Along with this, it is important to clarify that here and hereafter, innovative activities do
not imply innovation on a global scale. Any activity in which a country does not have prior
experience can be considered innovative. If there is no industry of buttons in the country, beginning
a button-producing enterprise will be considered an innovation. Importing technology from other
countries can also be considered an innovation, if it has not been practiced before.
In many cases, new/innovative business ventures are associated with solid expenses related to
identifying the cost structure. Along with this, entrepreneurs cannot predict the results of
experiments carried out during the search for new industries. Experiments may end either in failure,
which points at ineffectually disbursed expenses, or successfully, from which not only the initiators
of the experiment, but other persons can benefit as well. In other words, the business owners believe
that they can either get “a small gain” or “a great loss.” Consequently, the uncertainty with expected
costs forces the business to invest in traditional sectors and suppresses in them the motivation to
experiment. In this case, entrepreneurs at least have an option of ruling out the “great loss” scenario.
We can conclude that normally, private sector does not have the economic reasons for fully assuming
the risks related to innovation because the expense is private, while the benefit is public. In
developed countries this problem is solved through the patent system; in developing countries patent
system does not work, or is pointless, since a big part of the “new” technology is copied from other
countries. In developing countries, industrial policy should encourage the first “imitator.” For
example, in Singapore, companies are granted the status of “pioneers,” or “post-pioneers,” which
entails different privileges and exemptions, including allotting a temporary status of monopoly,
similar to the patent principle.
Eradicating the coordination failure
The second argument for government intervention consists in the eradication of the
coordination failure. Often, implementation of a business initiative depends on the procurement of
several interdependent conditions within the business activity. As a rule, inability of the parties to
find each other and establish a dialogue leaves the aforementioned business initiative
unimplemented. In order to solve this problem, it is imperative to coordinate the investment
decisions of different business owners. It is important to note that solving the problem of
coordination through government intervention does not require subsidies and is not very costly for
the budget. Nevertheless, a number of initiatives may require government guarantees, such as
reimbursement of investments if the related investment is not realized. The government support is
particularly important for those industries which are characterized by the scale or agglomeration
(cluster) effect.
In order to eradicate the coordination failure, it is important that the government, through its
own analysis and communication with the private sector, obtain information about those investment
projects, which require investment in other activities in order to be realized. As the result, the state
may reveal all parties interested in investing in various sub-projects of one large-scale project, which
ensures the realization of productive business potential. In addition, it is possible for the state itself to
invest in different activities. A full value-chain of an effective agro-production could serve as a vivid
illustration of a coordination problem.
Prerequisites for effectively solving the coordination failure and cost
discovery problems
As we mentioned above, every rapidly-growing economy implements industrial policies.
However, this does not automatically entail that every country that tries to realize industrial policy
will reach advanced rates of growth. Roderik (2004) reviews different important principles, upon
which successful industrial policy must rely.
While selecting the priorities of industrial polity, it is essential to establish the benchmark
criteria for assessing the level of success of their implementation. Further, it is important to
continuously analyze their consistence with the following principles:

Support for the new products only – as mentioned above, “new” implies a new product, as
well as the realization of an old product with the new technology;

Existence of a distinct measurement of a project’s success or lack thereof – for example,
export of certain amount of product by the company;

A built-in sunset clause– previously-determined condition for existing each project;

The support must be directed towards specific activities, and not an entire sector – for
example, instead of subsidizing an entire tourism industry, it is important to focus on the
barriers that hinder the development of tourism (language learning, server for booking

hotels);
Activities must potentially have positive externality –supporting the investments in other
activities;

Public agency which is responsible for executing policies must be sufficiently competent – at
the initial stages, beginning with the structure when executive body is characterized by high
levels of bureaucracy and high rate of qualification may be preferable to establishing a new
agency;

The executive agencies of industrial policies must fall under the detailed supervision of the
highest political level;

The executive agencies must have distinct measures of communicating with businesses;

It is necessary to assume a certain level of failure – the attention must be focused not on
reducing the probability of failure to the minimum, but on reducing the cost of failure. The
scarcity of mistakes points at the lack of intensity of industrial policy. Thus, on a micro level,
every project, when taken separately, cannot be productive. If the target consists of only
profitable businesses, then why does not the private sector implement them? If we are dealing
neither with very large-scale products (including co-financing), nor with the coordination
problem, then we can conclude that industrial policy is competing with the private sector.
According to Ravi Menon, Minister of trade and industry of Singapore, “Many economists are
deeply skeptical about government’s ability to “pick winners” – and for good reason. What
distinguishes a good industrial policy is not the ability to pick winners, but the guts to let
losers go” (Menon, 2010).

The mechanisms of support must be renewable and flexible – on different levels of
development, diverse instruments and various types of organizing an industrial agency may
be necessary.
It is important to notice that satisfying aforementioned prerequisites, in its turn, depends on
economic stability, low levels of corruption, effective bureaucracy and the trust towards state
institutions. There are many examples of unsuccessful state intervention, , as well as in the cases
of aforementioned successful countries. As Menon points out, despite the best of intentions,
industrial policy in many countries has degenerated into corruption and rent-seeking.
Economic Growth and Structural Transformation on the example of Georgia
During the past decade, Georgia has experienced a rather high, annual average 6.9 % rate of
economic growth, in which an important role was played by the successful implementation of
first generation reforms. Along with this, it is noteworthy that accumulation of the factors of
production was happening rather slowly in the country. Specifically, in the same period, the
share of investments in GDP was 25% on average, while in the aforementioned rapidlyexpanding economies, this indicator was on average 40%. Along with this, there was almost no
growth in the use of human capital. As the result, a large share of the expansion of economy was
due to the growth of productivity. According to the World Bank, such high rate of growth of
4.8% was conditioned by the so-called post-social transformation phenomenon (World Bank,
2013). The latter manifested itself specifically in the gradual intensification of capacity utilization
in remaining of soviet time industrial resources and their effective usage5. Such type of
restructuration occurred in every formerly socialist country, and it ended in Eastern Europe in
the 1990s. It is probable that this process has not yet ended in Georgia and further analysis in this
direction may lead to a cost-effective way increase employment On the other hand, despite the
amount of resources remaining in this direction, they are naturally exhaustible. Consequently,
sooner or later, we must get used to the 2-3% average annual rate of growth of productivity,
which characterizes economies similar to that of Georgia, and which, in order to reach the 7%
growth rate of economy, requires the growth of the ratio of investments to GDP to 40%. This, in
the case of financing the investments mostly by domestic sources, will result in short-term
reduction of consumer expenditure and worsening of the average quality of life 6. At the same
time, it is noteworthy that in Georgia we can observe the practice of private sector being mostly
interested in the traditional sectors. It can be said that in sum, the new industrial directions have
not been discovered and developed. Investment boom persists in traditionally popular sectors,
which causes their “overheating” and ineffectiveness of investments. These traditional businesses
include residential and commercial real estate, hypermarkets, commercial banks, pharmacy
chains (see diagram), and gas stations. As in the recent survey World Bank concludes, in Georgia
entrepreneurs enter the markets with high competition, similar products and low skills, resulting
in low productivity and survival rate over time.
Diagram 4: Number of pharmacies per 10,000 inhabitants.
5
For example, let’s discuss a functional greenhouse in Tskaltubo, which operated on diesel fuel during the Soviet
period and today uses nut shells as its energy source. Considering already existing basic infrastructure and human
capital, reinstating the green house’s functioning was naturally associated with less investment costs than creating
infrastructure and human capital completely with fresh investments. Alternative examples could be food and
beverage production, construction sector, and more.
6
Consumption per capita is a better indicator of the quality of life of an average citizen than GDP per capita.
Indeed, on a given day, the person who consumes the most, gains the most profit (“an egg today is better than a
chicken tomorrow”). However, maximization of today’s consumption can be an impediment for tomorrow’s
welfare. Because of that, for the dynamic optimization of welfare, it is important to invest a portion of today’s
income, which will increase future production and disposable income. The increase of the latter, in its turn,
provides an opportunity for the growth of consumption. It is important to notice that in Georgia consumption
constitutes a large part of GDP, which relatively improves the welfare of a household. To compare, based on 2007
data, GDP of Singapore (calculated by PPP) constituted 50,936 USD, while that of Georgia – 4,676 USD. A look at an
average consumption per capita provides completely different results. Specifically, in Singapore, consumption per
capita surpasses the same indicator in Georgia only five times, even though GDP (PPP) per capita between these
two countries differs 11 times. Consequently, for transition of GDP structure similar to Singapore in terms of
saving, consumption in Georgia must be significantly reduced.
10
9
8
7
6
5
4
3
2
1
-
It is important to note that a fairly developed banking sector, which naturally is mostly an
auxiliary industry, specializes in providing relatively low-risk and short-term capital, crediting of
already established industries and thus, cannot play a leading role in the structural transformation
of the economy.
Diagram 5: Economic Activity and Bank Financing by Sectors, 2012.
Business Loans and GDP by Sectors
Other
Transport and…
Mining & Manufacturing
Construction
Agriculture*
Energy
Trade and Services
*According to 2011 estimates, around 65% of
Georgian agricultural output is produced for
self-consumption.
Share in GDP
Share in Business Loan Portfolio
Based on international practice, and considering the leading role of the government in this
model of growth, the role of capital markets without effective industrial policy is also
questionable, especially bearing in mind that the amount of savings, size of markets and the lack
of relevant infrastructure are important barriers for the development.
In a sum, we can conclude that Georgian economy is developing more by the way of net
accumulation of fundamental capabilities, which, as we already mentioned, is a lengthy and
costly process. In order to move to the structural transformation model of economic growth, the
existence of industrial policy a necessary prerequisite.
It is important to determine on what levels and in what order should industrial policy that is
directed towards the growth of employment and productivity, be implemented. Based on present
challenges, on the initial stage it is better to concentrate on utilization of existing resources.
Diagram 6. Employment Statistics.
Hired Employment % of population
Hired Employment % of 15-64 Year Population
Hired Employment % of Total Employment
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
The Appendix provides several illustrative examples of the types of hypothetical market
failures that can occur in Georgia, and methods by which the government can solve the problems
that are associated with them. These examples serve for illustrative purposes only and not for
identifying priorities, or thoroughly describing the problems of the aforementioned sector.
Institutional Organization of Industrial Policy
Successful implementation of industrial policy necessitates its optimal institutional settings.
Regardless of how straightforward government intervention may seem, firstly it is important to
organize effective institutional framework. Put differently, when it comes to industrial policy
specifying the process is more important than specifying the outcome (Rodrik, 2004). It is
imperative that the aforementioned institutional scheme maximally maintains balance among
different economic agents (public sector, private sector, international institutions). Initiatives
should come from the government, as well as from private sector. Although the government
cannot estimate future market trends better than acting companies, coordinated discussion is
often more effective than the “trial & error” approach, which the companies adopt when they
experiment on micro level and learn from their own mistakes (Pfaller & Fink, 2011).
Organizational structure of successful industrial policy must be characterized by high levels of
political support, transparency and accountability. On a operating level, it is important to ensure
the access to necessary information and associated qualification decision makers, including the
knowledge of the sector on a micro level.7 Development of industrial policy must be headed by an
organization that is entitled to design general objectives and coordinate the issue related to
financing from the state budget. Aforementioned principles, as well as prerequisites and criteria
for selecting the priorities must be obviously taken into consideration. One of the possible
organizational frameworks is offered in “Georgia’s Long-term Development Conception” by
Georgian Business Association (Georgian Business Association, 2013). It is important to
effectively coordinate and concentrate state and donor organizations’ resources through this
mechanism.
Diagram 7. Available resources for designing effective industrial policy.
7
In this regard, Turkish industrial strategy is a good illustrative example. Here, based solely on textile industry, one
can argue that the group of professionals working on the strategy is thoroughly informed about the conditions of
the sector and has comprehended the reasons for government intervention (Turkish Industrial Strategy Document
2011-2014 (Towards EU Membership 2012), 2010)
It is notable that the prerequisites for implementing the framework already exist in Georgia;
specifically, macroeconomic stability is ensured, levels of corruption are low and state institutions
have trust within the context of relatively effective bureaucracy (World Democracy Audit, 2012).
For effectiveness and transparency of industrial policy it is important to define basic
principles, priorities and methods in the country’s strategic documents. Such approach can be
observed in many countries’ strategies, for example, in the 9th Development Plan of Turkey (State
Planning Organization, 2006).
Conclusion
International practice affirms that in developing countries rapid economic growth is achieved
not through net accumulation of fundamental capabilities, but through structural transformation,
where state policy, addressing to problems of cost discovery and coordination failure, plays a
significant role. In addition, if appropriate principles are not observed, industrial policy will cause
more risks than opportunities. Macroeconomic stability and a low level of corruption in Georgia
provide an opportunity for implementing successful economic policies and the potential of
industrial policy in this regard should be properly assessed.
Appendix8
Support for horticulture (herbs) in Imereti.
After the embargo was introduced by Russia, the export of herbs from Imereti decreased
significantly. An alternative market for selling herbs is Europe, however, export in this direction
is related to a number of difficulties, which are manifested in the problems of coordination failure
and cost discovery, namely:

There are no direct all-cargo flights from Kutaisi to Europe, since the airline company
does not expect high demand (full load) from the side of suppliers in case the direct
flight is arranged;

There are many independent small-scale herb producers, thus, separately they cannot
ensure that the airplane will be filled. The problem of cost discovery hinders their
consolidation and joint investments; due to the lack of experience, suppliers believe
that the export to Europe is related to excessive costs, and they are skeptical about the
feasibility of the idea itself. Commercial banks avoid financing these ventures for the
same reason.

For the large-scale distributors in Europe Georgia is a new supplier, and they
approach the proposal with caution, demanding additional guarantees of stable supply
to avoid shortage in the future;

It is important to address the problem of quality control of export goods. Existing
laboratory is insufficient for large-scale turnover and will need to be reequipped;
however, while the production is small-scale, investments are not planned in this

direction.
In order to export their products to Europe, producers will need to obtain
corresponding standard certificates (GAP), which, on the one hand, are related to
significant costs and therefore, are not readily affordable for all; on the other hand, if
all aforementioned conditions are not fulfilled, there will be no export and thus no
need for obtaining the certificate.

There is no government supervision to ensure safety standards, which, in case of only
one supplier’s dishonest conduct and mistake, may endanger an entire industry;
The following method can help solve the aforementioned problem: if, according to current
estimates, export with a fully loaded airplane is profitable, the flights must initially be
commissioned through government subsidies (on temporarily empty portions of the airplane),
and if the venture is successful, there will no longer be a necessity to subsidize. In addition, the
8
Examples listed are for illustrative purposes only and are derived from various sectorial research projects that
have been done about Georgia, among others (IFC, Georgia Sector Competitiveness Overview; USAID/EPI, Value
Chain Assessment).
renovation of the laboratory
should be financed. In case of failure, the project must be
terminated, with partial compensations of private sector losses.
Development of local nursery
During the past few years, an abundance of peach harvest, most of which cannot be traded,
has become an important problem. The problem was partially caused by the absence of local
nursery, because of which, in the majority of gardens cultivated recently, only several varieties of
fruits are planted. Consequently, a large part of a single type of harvest is concentrated in one and
the same period. This reflects on prices, and, consequently, on the profitability of farmer as well.
In developed countries, this problem was solved long ago (Dave Wilson Nursery, 2012).
Specifically, along with the development of cold storage, the method of new plant propagation is
also being extensively used, which allows for the harvest to be available at the time chosen by the
farmer. The methodology of propagation is available and the import of plants - possible, but it is
necessary to adapt them to the local climate and experiment with different types of soil, which is
associated with significant expenses. Farmers independently will have difficulties carrying out
this project, but within the framework of industrial policy, financing of such project can yield
fruitful results.
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