Potential output of Georgia(country) - Essay Example

POTENTIAL OUTPUT OF GEORGIA Georgia is a small transition economy with a total population of 4.4 million in 2009 and Gross domestic product of US$ 12.80 billion.1 Georgia exported agriculture, energy and other intensive industrial products to Soviet Union prior to 1991. The economy of the country collapsed after its independence in 1991 because of the effects of civil war. The output and exports of the country fell by 70 percent and 90 percent respectively which is considered as the worst decline ever faced by any transition economy.2
The GDP contributions of different sectors of Georgia are agriculture (12.5%), industry (27.9%) and services (59.6%).3 According to Georgia Economic Review (2009) the nominal Gross Domestic Product of Georgia has increased from 8,564 in 2003 to 19,070 in 2008. It means that in the last five years, the total increase in nominal GDP of the country is about 123%. The real GDP growth rate 2008 of Georgia is 2.1% which means that the output level of the country has increased. The global financial crisis 2007-2009 has lowered the GDP of many countries while the output of Georgia even during the crisis has remained positive. The value of nominal GDP shows that major increase in nominal GDP is brought by inflationary pressures and increase in the worth of goods and services; however, real GDP explicitly shows that a small increase in output of the country has been also seen.
Georgia is considered as a country rich in energy resources. However, in 2007, the total oil extraction was 55-60 thousand tons which was very low as compared to the annual demand of 750 thousand tons.4 On the other hand in the same year, the annual consumption of electricity in the country was about 8.5 billion kWh while the country production was higher than consumption, thereby making Georgia a net electricity exporter.5 “It is the only country in the region (which doesn’t have its own gas resource) that was not affected by gas crises in January 2009 (Georgia Economic Overview).” Georgia has huge opportunities in hydro energy because of the construction of 500 kv power transmission line to Turkey, 78 MV Paravani HPP and 38 MW Mtkwari HPP. Surprisingly, although its hydro energy output is so huge however, only 18% of hydro potential has been used. The overall industrial production growth rate of Georgia in 2008 is -1%.
The potential output of agriculture sector of the country has started to cover the wreckage caused by civil unrest. In the Georgian agriculture, winemaking is the major area however, since Russia was the major importer of Georgian wines therefore, the demand of Georgian wine decreased in 2007. It is expected that the potential output of 2009 will be higher as compared to the previous year because more budget has been allocated for social and basic infrastructure development in the budget 2009.
In conclusion, the potential output or natural GDP of the country is improving after the civil war crisis in the country and soon Georgia will be able to increase its potential output.
Bibliography
Central Intelligence Agency. "The World Fact Book." 29 September 2009. CIA.gov. 13 October 2009 .
"Diverse Investment Sectors ." 2007. Georgia.gov. 13 October 2009 .
"Georgia Economic Overview." October 2009. Gerogia.gov. 13 October 2009 .
Transparency International Georgia. "Georgia’s Oil and Gas Potential:Georgia as a Traditional Transit Country for Azeri Energy Resources." June 2008. Investment Guide. 13 October 2009 .
World Bank. "Country Brief 2009." April 2009. web.worldbank.org. 13 October 2009 . Read More