Economic transformation

In 2004-2012, when the members of the Reformatics team served in high-level government positions, Georgia underwent far-reaching reforms and exemplary economic transformation. The government of the time initiated a full-frontal approach–liberalizing the economy, carrying out regulatory and economic reforms in several areas simultaneously, and fighting the widespread state corruption that was hampering growth.

Georgia’s vision was to increase competitiveness and to become a regional hub for trade, investment and logistics through the liberalization of business regulation, the elimination of red tape and increased attractiveness to investment.

The following are a few examples of the landmark reforms which Georgia implemented at the time, creating a solid foundation for diverse and steady economic growth:

Tax reform: only 6 flat and low taxes instead of the previous 21 progressive tax rates, increasing the tax-revenue-to-GDP ratio from 7% in 2003 to 24% in 2012 (a 12-fold increase in nominal terms)

Easing the regulatory burden on businesses by abolishing 85% of licenses and permits required to conduct business activities

Substantially reforming and liberalizing the labour code, achieving the highest labour freedom worldwide (2008 Heritage Foundation Index of Economic Freedom).

Creating a world-class, ’one-stop’ customs system where standard customs procedures are completed in as little as 15 minutes

Adopting the so-called ’Liberty Act’ to lock in liberal reforms and make them irreversible, e.g. by requiring a popular referendum in case of tax increase

As a result of these reforms, Georgia achieved remarkable growth, coped comparatively well with the 2008-2009 global financial crisis, and demonstrated quick and sustainable crisis recovery.

Some of the most notable figures are:

8% average GDP growth pre-crisis (2004-2008)

400% GDP per capita increase (2003-2012)

12.5% average FDI/GDP ratio pre-crisis (2004-2008)

During Mr Gilauri’s term as Prime Minister, Georgia recovered remarkably well from the double shock of a Russian invasion and the global financial crisis–the country was already back on track for growth by the end of 2009–and the country’s GDP from -9% in Q2 2009 to +8,1% in Q2 2012.