South Caucasus Data 2007 on Unemployment

Unemployment clearly is one of the pressing issues in the South Caucasus. But there is a lack of reliable data on people being without and looking for a job. This blog, based on CRRC’s Data Initiative 2007, provides a snapshot on these numbers.

According to CRRC’s dataset, about 25% of the adult population in Armenia and Georgia, and 20% of Azerbaijan’s citizens say they are unemployed. Further analyzing these numbers shows that 18% in Georgia, 14% in Armenia and 12% in Azerbaijan are actually interested in looking for a job.

[Note: excluded are “students", "housewives", "disabled" or "retired" - even if they are looking for a job.]

Yet the data shows sizeable differences across the countries, depending on whether you ask in rural areas, urban environments, or the capital. Let's look at what people say when asked whether they consider themselves to be employed. Note that housewives, pensioners, disabled and students are also considered "not employed".

Do you consider yourself to be employed? This employment may be part-time or full-time, you may be officially employed, informally employed, or self-employed, but it brings you monetary income.

If you analyze the data of by settlement type, it reveals that of those that describe themselves as not employed a relatively low number of people look for work in Baku (22%), compared with Tbilisi (29%) and Yerevan (32%). Besides, about the same share of people (again, of those describing themselves as not employed with monetary income) in the three countries look for a job in rural areas (nearly 30%).

However, the data impressively illustrates that the major interest -- among those that are not employed -- in a workplace can be found in urban areas, where about 40% of Armenians and Georgians, and almost 50% Azerbaijanis try to find work. This figure powerfully underlines the desolation of Caucasian cityscapes.

Of those that are not employed, what percentage is looking for a job?

Finally, the DI statistics show that the same number (once you factor in the margin of error) of people is unemployed and interested in a job, but not currently looking: 6% in Armenia, and 5% in Georgia and Azerbaijan. A slightly lower number of the unemployed is not looking for a job at all. Have those already given up?

Now the definitions of unemployment always are a little complicated (are pensioners looking for work considered unemployed?), but here is an article that can help. If you are interested to check the datasets yourself , please download it from CRRC’s homepage. For more information on the Data Initiative project, please click here.

How Supply fails Demand | Pots of Honey

So what plagues local business? In many cases it's the same problem we have in politics as well: there simply is the wrong paradigm. It is self-centered, rather than being other-centered. Or, if that sounds too much like marriage counseling, let's put it this way: too many sellers try to solve their own problems, rather than those of other people. Nothing wrong with that, but it's not how you can succeed in a market. After all, who likes to spend their money on other people's problems? Charity is not a business model, at least not in retail.

Now in the last few days, an email exchange that perfectly illustrates this problem. (Note: I changed names, and the person is not even local. But it demonstrates the perennial problem.)

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Dear all,

Many of you have purchased honey produced by my in-laws out close to Bakuriani. This year we have a bumper harvest and I can honestly say that the honey is even more delicious than ever. Its great with tea or over hot cereal and is especially effective at warding off colds. Most of the honey sold in the bazroba is adulterated with sugar water, but the one we offer is all natural. Price is 15 GEL per liter [around 10 USD], different sizes can be arranged.

Please contact me off list or call XYZ at 877-1234567 to arrange delivery.

Cheers,
Anna

-------------------------------------
From: Hans Gutbrod
Subject: Re: honey for sale
To: Anna
Date: Saturday, October 4, 2008, 12:19 PM

Hi Anna,

I really liked the honey, but I think you'd market it more effectively if you sell it in small doses. The 1.5 Litre pot that I bought last year (or even the year before?) is still sitting in my apartment, and I am still scraping it...

I think if you sell it in 250g jars, maybe with a small cute label, for 6 GEL, with 1 GEL going towards the charity your husband runs, you'd have even more uptake.

Anyway, I'd happily take 4 jars of 250 g each, and would pay extra for the jars.

Best,
Hans

-------- Original Message --------

Subject: Re: honey for sale
Date: Sun, 5 Oct 2008 12:21:00 -0700 (PDT)
To: Hans Gutbrod

Hi Hans,

I've sold small jars in the past at the Christmas bazaar, but it's really not worth our time, not to mention the mess. We have 2 tons of honey this year! If you'd like 2 half-liter jars, I can do that.

Cheers,
Anna

--------------------------------------------

So effectily Anna (not her real name) is trying to solve her problem of 2 tons, rather than my problem of how to consume that honey.

Pooh the Bear would be impressed.

Note the maths: 4 x 250g @ 6 GEL = 24 GEL; subtract additional cost for label and jars, and you still could make more than 20 GEL, an extra 5 GEL on the 15 GEL per liter. And that price is realistic, since the market that Anna is advertising to is NOT price sensitive, merely focusing on quality and convenience.

At least as important, Anna is cutting herself off from a natural extra market: honey as a nice gift in and from Georgia. A small, well-labelled glass of honey works well, it's a present that anyone would like to give and receive. Conversely, who will schlepp 1 liter pots anywhere?

These giant pots of honey to me are emblematic of why supply so often fails to meet demand. Sweetness undesired, at least in that shape and form. No wonder, then, that you still have so much foreign honey lining local super-market shelves. I sometimes even wonder whether these little stories and lessons are not at least as important in characterizing the business malaise than the larger economic explanations.

Any other instances you have come across? Any suggestions for how we could measure this phenomenon?

Focus on non-oil tax policy as oil revenues predicted to decline

The IMF has recently published its analysis of the developments in non-oil tax policy, administration and revenues in Azerbaijan. Non-oil tax policy could be an important tool in stimulating the development of non-oil sectors of the country’s economy.

In 2007 the oil sector accounted for over the half of the country’s GDP. Last year 62% of FDI went to the oil industry. While the non-oil sector is reported to grow by 15.6% during the first half of 2008, the oil sector remains the major source of budgetary revenue.

The IMF has warned previously that the growth rates in Azerbaijan are expected to decline significantly after 2010, once oil production passes its peak period. Even though this forecast was later refuted by some experts, who believe that the oil potential of the deep-water oil fields has not been fully explored yet, the importance of development of the non-oil sectors is widely recognized.

The decline of oil production will directly affect the revenue from the tax collection. Although the non-oil tax revenues have been steadily increasing since 2003 (see the chart below), the collection level still is below its potential. Several reforms aimed at modernizing the tax administration were implemented. Still, the wide-spread underground economy adversely affects the level of tax revenue. To broaden the tax base, the IMF recommends to reduce tax exemptions and benefits, and to make the tax privilege procedures more transparent. Also, to increase compliance, tax regulations, as well as all instructions and forms must be simplified and made easy to understanding of all taxpayers. The author of the report also recommends to reduce direct tax rates and to apply a unified rate to personal and corporate income. Tax and custom administration in general must be strengthened. The paper is available at the IMF website.

Source: IMF 2008

Polling Data on Turkish-Armenian Bilateral Relations

Recently, as a result of the football diplomacy between Armenia and Turkey, an opinion poll was conducted in both Turkey and Armenia to gauge the reaction to new gestures in the Turko-Armenian relationship. The poll was carried out by MetroPoll in Ankara (Turkish only website) and by the Armenian Center for National and International Studies -- run by Rafik Hovannisian an American Diaspora Armenian now resident in Yerevan and involved in Armenian politics.

Unfortunately, the original questions asked or the sample size are not available online. However, the findings are indicative of the opinions of countries that are winners and losers (Turkey -- winner, Armenia -- loser).

In Turkey, almost 70 percent of the population found the Turkish president Abdullah Gül's trip was successful and presumably supported the normalization of relations with Armenia. What would have been more interesting to ask, however, was Turks view of the importance of normalizing relations with Armenia. I would hypothesize that the majority of Turks, particularly those who live far from Eastern Anatolia do not see the current position as hurting their economic interests and do not see the issue as vital -- particularly if it would require any change of Turkey's stance on the genocide issue. With Armenia's limited purchasing power, Turkey stands little to gain economically from opening its border. Furthermore, Turkey already export to Armenia through Georgia, and it is presumably Armenia that pays the higher costs for goods, not Turkey.

Interest in Armenia may be more pronounced for those Turks who live in Kars and other settlements bordering Armenia. However, while these places stand to gain most from cross-border trade, they also may have much stronger feelings about how the opening of the border may affect their lives and have potential worries about attempts of Armenians to reclaim or purchase property in the area.

Given the deep and continuing melancholy that permeates much of Armenian society's consciousness as a result of the slaughter and expulsion of hundreds of thousands of Armenians from Eastern Turkey and the central role that genocide plays in Armenian political culture, the Armenians show much more skepticism towards normalized relations with Turkey -- though the news is not all bad. Only 11 percent of respondents said they were against all cooperation with Turkey -- albeit 76 percent were only willing to normalize relations after certain preconditions were met. Ostensibly, preconditions revolve around the recognition of the Armenian genocide.

However, we would expect that more thorough plumbing of Armenian citizens' perceptions may reveal a more nuanced understanding of the policy trade-offs involved in preconditions. Likely, many more Armenians may be willing to engage in some compromise, if it meant more sustainable economic growth. Unlike Turkey, Armenia stands to reap large economic benefits from the opening of the border with Turkey. Transport costs would drop significantly for the many Turkish products that already wend their way through Georgia to Armenia; moreover, Armenia would have a more ready export market for finished goods they produce -- particularly if the Caucasian Tiger becomes more of a reality than a simulacrum.

Whatever the future for relations between Turkey and Armenia may hold, it is important to continue to provide open and reliable data on the process.

The August Conflict | Economic Impact on Georgia?

Tbilisi radar, destroyed by a Russian missile

In Georgia, attention now turns towards sorting out the impact of the short August conflict. How plausible is the reporting we are seeing? Do the journalists get it right?

Here's one account by the New York Times, outlining some of the damage and the upcoming challenges.


Click here for the complete article (access is free, but it will require you to register; we can make the article available to you directly as well).

Posted on an e-mail newsgroup focusing on Georgia, this NYT article quickly drew a response. Here is what (Dr.) George Welton, a consultant we have worked with extensively and who has done various research projects in Georgia, had to say:

-----------------------
"This is sufficiently fishy to warrant comment. First, ‘Caucasian Tiger’ gimme a break. As far as I could tell before the war the economy was vastly overheating with an inflated property market and a banking sector expanding way too fast (is there any other city in the world with this many ATMs?) But more importantly, Georgia was still not really producing anything that the world wanted to buy. Two of its largest exports – manganese and copper – have increased their revenues dramatically largely because of the price of resources going up on world markets and agriculture has still not recovered from the Russian market closing (wine is now exporting at about 40% its pre-ban levels – not allowing for inflation). But now everything wrong with the Georgian economy is going to be blamed on the war.

That said, I think that the war damage melodrama is vastly unhelpful.

1/ I don’t really buy this claim of $50 million repair costs for Caucasus Online. Can anyone verify this happened? I know people who were emailing, texting and skyping throughout the war – and there are lots of reasons why a business might want to exaggerate its losses. I have a feeling a lot of Georgian businesses might find they had things hit by the Russians in coming weeks.

2/ The tourist season has been damaged but ‘Russian tourists?!’. The Armenian tourists (who have to be the vast majority of the Georgian tourist market) will be back next year.

3/ There is no evidence that the fire outside of Borjomi National Park was started with incendiary bombs. The 950 hectares (just under 10 square kilometres) was almost entirely outside the park (the revised Gvt figures put 150 hectares in the park) and even if it had all been in the park, this is only slightly more than 1%. Borjomi did not ‘burn’.

4/ The idea that the Russians targeted infrastructure or that they might in the future is completely unsupported by the evidence. One train bridge (right next to another train bridge which almost immediately replaced it) was destroyed. None of the key infrastructure (Inguri dam, the BTC pipeline, the ports etc) were damaged significantly.

5/ The banking system survived without banks closing their doors for a significant time and in spite of the fact that there was a war. This is remarkable and while I am sure it will continue to need support, I think this should be seen as a sign of the strength of the Georgian economy, not its weakness.

6/ One billion infrastructure losses?!? – I guess he must be talking about the military (which still seems a little implausible)

The reason why this matters is that where the article is right is that the key damage to this country is investor confidence. Foreign aid might get the Georgian budget through the next two years or so – but after that if investors don’t start to come back then the country is really in trouble. And talking about the horrendous damage and huge risks that Russia poses to the country are not going to help that confidence return.

----------------

So far George Welton's comments. Any views?

No Adult Male Role Models: Distorting Armenian Male Teenager’s View of Masculinity

Gender issues in Armenia are currently under-evaluated and are interpreted predominantly as women's issues. Most of the recommendations drawn from different research suggest special policies to support and reinforce women's integration into traditionally male-dominated areas. According to CRRC-Armenia fellow Mariam Martirosyan, it is dangerous to ignore areas where significant under-representation of men is apparent; since in the long-term view, it may lead to a outcome for the Armenian male, the Armenian family unit and Armenian society in general.

Mariam Martirosyan studied the impact of the lack of adult male role models or senior male mentorship in Armenian schools on male teenagers' perceptions of masculinity. The research findings were alarming. The lack of male teachers in contemporary Armenian schools causes misperceptions on masculinity and male gender values among teenagers, often resulting in increased crime rates and delinquent behavior among young male adolescents.

In the attempt to find solutions to the problem presented in the paper, the fellow recommended to attract and engage more men into Armenia's secondary schools by increasing teachers' salaries; to bridge adult and young males via programs like the ZANG program, to assign male students of higher education institutions as mentors for primary, secondary and high-school students; to organize frequent tours to the army or to different factories dealing with technology and construction.

The fellow published an article in the June 2008 issue on "Journal of Education and Human Development" at the Scientific Journals International. The paper (in PDF format) is also available for download at the CRRC-Armenia website.

Vouchers for Childbirth | A Field Study

CRRC fellow Simon Gabrichidze and his research partner Tamar Trapaidze evaluated the implementation of a newly launched State Assistance Program (SAP) by the Ministry of Labor, Health and Social Affairs aimed at providing better health services for people living under the poverty line in the Samegrelo and Adjara regions.

The fellow conducted focus groups with stakeholders and structured interviews with 320 mothers living in the abovementioned regions who gave birth in Zugdidi and Batumi between June and September of 2007. Gabrichidze compared three female target groups, those who:

1. Were in the database of people living under poverty line;
2. Were not in the database but applied for a "voucher" that covers delivery expenses;
3. Did not apply for any assistance from the state and paid all the expenses related to child delivery themselves.

According to the findings, the general population is aware of the health benefits envisages by SAP, however, the level of awareness is rather low: only 57% of patients in Batumi and 60% in Zugdidi knew that a voucher for free medical service fully covers all the expenses related to child delivery; the rest of the respondents thought that the voucher only partially covers costs.

The main reasons for mothers not using the State Assistance were the regulations of the program. The study showed that trust in health care professionals was the lowest in this last group, those that paid all for themselves. So that people (curiously even those in need of the social assistance program) preferred to pay money for child birth, rather than visit doctors and health care service provides unknown to them. The respondents from the first group were most satisfied with medical service, while the ones from the second and third groups were more dissatisfied with out of pocket payment and financial affordability of the program.

According to doctors and social agents, very often comparatively rich pregnant women request voucher from the State; as the fellow recommends, the government should introduce more strict criteria for identifying beneficiaries of this group (or completely abolish it) and direct funds to the people that really need such assistance.

Here is the PowerPoint (although, note, this was for a verbal presentation, not specifically for the web). 

Vouchers for Obstretic Care in Georgia

View SlideShare presentation or Upload your own. (tags: georgia vouchers)

The full report is also available on the CRRC-Georgia website.

Russian Public Opinion | Levada Update

And here is an update on Russian views, made available by the Levada Center on the 22nd of September. As previously stated, this indicates that Russian public opinion generally supports the government's course.

-------------------
In September 12-15, 2008, the Analytical Center of Yuri Levada conducted a poll among 1600 Russian respondents in 128 settlements of 46 regions. Margin of error is ± 3%.

When we talk about Abkhazia and South Ossetia – in your opinion, is the situation intensifying, staying tense, or tension is decreasing and life becomes more peaceful?

Situation is intensifying      6
Situation is staying tense 57
Tension is decreasing and life becomes more peaceful 30
Hard to answer     7

In your opinion, should Russia keep its military forces in South Ossetia or should they withdraw their forces?

Keep its military forces in South Ossetia 56
Withdraw its military forces from South Ossetia 27
Hard to answer 17

In your opinion, Russia’s recognition of independence of Abkhazia and South Ossetia will benefit Russia, will harm Russia, or will neither benefit nor harm Russia?

Benefit 40
Harm 15
Neither benefit nor harm  28
Hard to answer 18

What do you think about annexation of South Ossetia and Abkhazia into the Russian Federation?

This should be done as soon as possible 20
Probably this should be done, but later, when the tense will go away 26
This decision should be well thought, is it worth doing it or not 25
This should not be done 12
Hard to answer 18

What do you think of inclusion of South Ossetia and Abkhazia into the Union of Russia and Belarus?

This should be done as soon as possible 20
Probably this should be done, but later, when the tense will go away 20
This decision should be well thought, is it worth doing it or 24
This should not be done 14
Hard to answer 22

----------------------------

Now what would be interesting to test is how much average Russians actually know about the conflict. As has been reported somewhere (unfortunately we lost trace of the exact source), Russians typically overestimate the number of Georgians, Ossetians and Abkhaz. (One Moscow-based friend believed that Abkhaz and Ossetians together numbered 2 million, when the real combined number is unlikely to be beyond 300.000.)

So: what do Russians otherwise know? Do they believe that there were mass killings of Ossetians? Are they aware that there were several Georgian peace initiatives? Do they know that Georgia has experienced significant progress since 2004? It would be interesting to find that out.

Baku's Urban Change | Commentary and Photography

Interested in urban development? Want to know how outsiders describe the urban experience of Baku? Two young researchers from Germany have set up a blog to follow their project in tracking changes in Baku. Oriana Kraemer and Sebastian Burger take photographs, attend lectures, and comment on what they observe. Given the inflow of sudden wealth, Baku witnesses comprehensive change. A great project, therefore. 

In photos and blog entries they chart the rhythm of the city, how old buildings yield to new ambition, the beautification of façades, and their own encounters. They bring a particularly good eye, and the slideshows add context with the subtitles (see below).

Among other things, the researchers also summarize a recent lecture by Anar Valiyev at CRRC Baku, who compared differences between urban development in Azerbaijan and America. It's a short post, but it's a good entry towards exploring their blog, and the fascinating issue of urban development in Baku.

Central Eurasian Studies Society (CESS) 2008 Conference

As last year, we again went to the annual conference of the Central Eurasian Studies Society (CESS). This year, it was held at Georgetown University. CESS conference focuses on issues that pertain to Central Eurasia (from the Kurds to the Mongols). What makes this conference attractive, then, is its geographical focus, and that it brings scholars together from a broad array of disciplines: demographers, sociologists, political scientists, ethnographers, linguists, historians, as well as a scattering of other niche groups.

The Caucasus usually has a slightly tenuous position within this conception of Eurasia, perched almost out of sight. This year, because of current events, it had more prominence (although the grand hall seen in the image below was only used for the keynote address on Afghanistan, otherwise we were in fairly grotty underground rooms).

One paper by Reid Hamel, a Ph.D. student in Demography at UC Berkeley and our former Summer Fellow, was based on CRRC data. Separately, we presented results from various opinion surveys at a Georgia-focused roundtable (with Julie George, Stephen Jones, Svante Cornell).

Striking, in many of the debates on ongoing issues, how, as one prominent Caucasus scholar put it, everyone is "so eager to confess others' sins". Indeed, one of the main impediments to scholarly debate was the repeated intrusion of standpoint statements ("what you said is an insult to all the victims..."), and the search for moral acclamation.

An urgent need, then, to move beyond the exchange of accusations, and for all sides to examine how they contributed to current events, and what they will need to do better. As Percy Cradock, a former British diplomat once put it: it's never the other side you have to worry about, it's your own. That change of approach would go some way towards the statesmanship that the Caucasus now needs: recognizing your own limitations and from such a precise understanding, forge new possibilities. Unrealistic ambitions can hold you hostage, sometimes more than an external power.

But in between, constructive debates, a variety of viewpoints, and a very rich list of topics. If you want to see who is working on what types of issues, take a look at the conference program. Kevin Tuite, Paul Crego, Julie George, Babken Babajanian and various other Caucasus scholars were present, and you may be interested in checking out what they are up to.

What do Russians think about the situation in Abkhazia and South Ossetia? -- Data Snapshot

How do urban Russians view the conflicts in South Ossetia and Abkhazia? From September, 5th-8th, 2008 the Analytical Center of Yuri Levada conducted a survey in ten big cities of the Russian Federation, interviewing 1000 Russian respondents. We have translated the results into English here, as they are only available in the original Russian on the Levada website.

Indeed, the results are slightly unintuitive and several different and overlapping interpretations could be kept in mind when reading the results.

• The results demonstrate that Russians still hold a deeply imperial mentality, which rues the loss of influence over both territory and people, despite the fact they are not co-ethnics.
• Respondents are afraid to share their opinion and are just towing the party line.
• Media coverage has swayed the Russian population's view to be more in line with the government.

Without further adieu, the results:

The overwhelming majority of respondents (80%) said Russia’s recognition of Abkhazia and South Ossetia was the right decision, demonstrating their support of their government's decision -- unpopular in the West -- to recognize these territories.

When asked about timing, most thought it was either well-timed (34%) or overdue (30%) and only 4% thought is was incorrect. A further 8% believed that the territories should have been immediately absorbed into Russia.

On the question whether the Russian army should stay on the territory of South Ossetia, should Russia keep only its peacekeepers for separating conflicting parties, or should the Russian regular army withdraw and be completely replaced by an international peacekeeping force led by the UN and the EU, again the majority supported a Russian solution to the problem.

While the respondents answers to these questions apparently point towards support of maintaining Russia's sphere of influence and backing of the Russian government's positions, the majority of respondents do not appear to be comfortable creating ethnic homelands for either the Abkhaz or the Ossetians. Of respondents, 64% believe that Russia should support the return Georgian refugees (and ostensibly IDPs as well) to Abkhazia and South Ossetia and protect them from oppression from the Abkhaz and Ossetians, while only 25% do not. Logically, this also means that they would support Georgians becoming Abkhaz and Ossetian (and most likely also Russian) citizens.

Russian public opinion, then, on the issue of return will most likely signifigantly differ from the opinions Abkhaz and Ossetians living in the conflict regions, though measuring this would of course be fascinating (but currently undoable).

You can read more here (note that the survey is in Russian, for our English translation send us an email).

Of course, it would also be great to have data on Georgians’ attitude toward the August crisis.

Credit Crisis in the Caucasus?

Over the past year questionable lending practices by major banks and lack of consumer education about credit risk in the United States among “sub-prime” borrowers caused a credit crunch that in turn erupted into a major financial crisis that threatens to lead to a recession and an international economic downturn.

Although little attention is paid to the issue of credit and debt, analogous risky practices are taking place in the banking sectors of the countries of the South Caucasus. A similar financial crisis in these countries could have a far more devastating effect, since one of the population groups most exposed to consumer debt is the small but consolidating middle class in the urban centers. This issue becomes particularly important in the wake of the August war in Georgia, as the region attempts to maintain economic stability in the face of infrastructural damage and reduced foreign investment.

The emerging middle class has been both a cause and a result of high levels of growth in the economies of all three South Caucasus countries over the past several years, and the banking sectors in these countries has been an area of particularly high growth because of structural reforms, increasing government regulation, and high demand for investment capital.

Banks have become more eager than in the past to extend consumer credit, but for a number of reasons interests rates in the region are extremely high: because of perceived risk of investment in the region and the risk of devaluation of local currencies (the highest interest rates for deposits are for accounts held in local currencies), and because of physical shortages of currencies as governments reduce outputs to combat inflation. Rates for consumer loans in the region average 15-20 percent, which are significantly higher than the 7-9 percent rates for sub-prime mortgages that precipitated the crisis in the United States.

Banks in the region have also been eager to introduce credit card services, offering the convenience of credit lines to their clients for purchases along the model long familiar in developed countries, with no interest if payments are made on time, but stiff penalties for missed payments. Advertising for loans and credit cards are ubiquitous in the capital cities, and credit booths are common in computer and furniture stores.

Yet although micro-credit programs have been functioning in the region for a number of years, particularly in rural areas, the whole phenomenon of commercial consumer credit is largely a new concept for the urban middle class. New borrowers have neither credit histories upon which banks can determine levels of risk, nor experience or deep understanding of the potential hazards involved in taking loans.

According to data from the Caucasus Research Resource Centers’ Data Initiative Project, while the number of households in Azerbaijan, Armenia and Georgia that take loans overall is not large (and real mortgages are practically nonexistent), the number is substantial enough to merit concern: 4% in Azerbaijan, 15% in Armenia and 9% in Georgia. The majority of those loans are for more than 100 USD (78% in the case of Georgia), and in Armenia and Georgia more than half of those who use credit have taken two or more loans. And while a portion of these loans in all three countries are taken for essential expenses such as medical care, utilities or food (demonstrating extreme poverty), approximately half of loans in all three countries are taken for consumption, investment or business purposes, or to repay previous loans.

While many consumers in the region may be making careful strategic choices in using credit, it seems that a significant amount of loans are being used for highly speculative investments, such as in real estate or in businesses that have been profitable in the past but are now close to saturation (e.g. restaurants and cafes and importing automobiles). The real estate markets in particular seem to be highly inflated in the urban centers (again, fueled by speculative trading financed by very high interest loans) and the resulting bubble is likely to burst if perception of a slowdown or reversal in rates of price increases were to appear.

For their part, banks in the region seem to take little interest in the types of projects that loans are being requested to finance, have set only the most minimal requirements for the extension of loans and credit cards (usually a letter from an employer stating a minimal average salary is sufficient), and have taken little initiative in providing consumer education for their clients.

High interest loans and risky investment decisions thus create a very real possibility of overextension by clients of consumer credit who owe more money than they currently earn, which in turn presents a very serious risk of a financial crisis that could threaten to undermine the banking and real estate sectors, particularly given the shocks to the system that resulted from the Georgian-Russian war in August. Such a financial crisis would most likely have far more serious consequences for the fragile economies of the South Caucasus countries than in more developed countries. It would threaten most directly the nascent middle class, which is such an important constituency for the further development of stability, rule of law and democracy in the region, and could therefore have serious consequences as well for the political stability of the region. It is in the interests of both governments and commercial banks and loaning organizations in the region to forestall such a crisis by implementing more rigorous requirements before extending credit and devoting resources to consumer education.

Doing business in Azerbaijan: easy in theory

Results of the World Bank’s Doing Business 2009 project, claims to present "objective measures of business regulations and their enforcement across 181 economies and selected cities at the sub-national and regional level", were made public today.

According to the report, Azerbaijan made the biggest progress in reforming business regulations among all surveyed countries and rose from last year’s 96th place to the 33rd in 2008. Azerbaijan came ahead of most CIS countries, excluding Georgia with its 15th rank in the report.
The Bank ranks countries according to the following 10 sets of indicators: starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and closing a business.

Azerbaijan has improved its ranking in all of these indicators, with the exception of closing a business. The biggest positive changes were achieved in protecting investors, registering property, starting a business, and employing workers through several steps such as substantial amendments to the labor code simplifying hiring and dismissal, creation of a second commercial court in Baku, a new unified property registry, and a one-stop shop for company registration.

Local experts do not agree with the overly optimistic results of the report. Just yesterday the Entrepreneurship Development Foundation, a local NGO, presented results of a survey conducted among businessmen in Baku and regions in May-July 2008. According to the survey, that included 41 questions on entrepreneurship, about 52% of small entrepreneurs in Azerbaijan consider it impossible to conduct business without violating laws and regulations. Sabit Bagirov, the chairman of the Foundation, added that the fear of being persecuted led to a quite high non-response rate.

Another local economic expert, Gubad Ibadoglu, told Radio Liberty that since the World Bank partners mainly with the Government, the ranking resulted from long and intensive negotiations between the Government and the Bank officials.

The Doing Business methodology relies on surveys among “local experts, including lawyers, business consultants, accountants, freight forwarders, government officials and other professionals routinely administering or advising on legal and regulatory requirements”. As noted by a 2008 independent evaluation of the Doing Business project (available here) , the report is based on the assumption that improved regulatory environment leads to the improved firm performance and economic outcomes. It does not capture how the regulations are actually applied, or whether they work in the reality. Among other things, the evaluation recommended to expand the informant base and to make the selection of informants more transparent.

Beyond a doubt, the report succeeded in influencing policy makers and giving an impulse to a number of policy changes in Azerbaijan, but one must use caution when interpreting its rankings.

Surveying Corruption | Details Matter!

Corruption remains an endemic feature in the region, outside Georgia. No wonder, then, that it continues to receive considerable attention from organizations and donors. Currently, we are being asked to run a survey (we will publish details on that later). How do you do this? Not all of this research is intuitive. Here are a couple of examples of what can go wrong, taken from the draft questionnaire we were given.

One obvious way of getting at the issue is to measure experience, to ask whether people themselves have paid bribes in the last 12 months. Is that a good way of measuring levels of corruption? Well, there are limitations. One limitation is that you simply don't know how much people have actually interacted with institutions that may demand a bribe. If you don't have a car, if you don't need any official document, are not enrolled at a university, and don't visit a hospital you simply may not become a target. In fact, one likely result of corruption is that you minimize contacts with official institutions in order to reduce your exposure to corruption. So you definitely need to measure the extent of contact, in addition to asking people's experiences.

What actually is NOT a big problem is whether everyone will tell you the truth. The survey questionnaires typically are set up to get people talking, and ask the more sensitive questions half way through, so that the respondent already feels comfortable. Sure, quite a few people will still be reluctant to admit that they paid a bribe, so what you measure is only the number of respondents that tell you that they paid a bribe. But this in itself is valuable: the honesty typically stays pretty constant, making responses from 2007 well comparable with those from 2008.

But the questionnaire is also tricky in other ways. Let's say you want to get a sense of peoples attitudes towards paying a bribe. The following may strike you as a useful question, at face value.



But there is something wrong with asking this speculative question, since corruption is contextual. Let's look at three very different cases:

1. You may be subsidizing an underpaid doctor so that she looks after your grandmother. Without these payments, the doctor couldn't survive. Would you refuse to pay the doctor? Probably not. Such private additional payments in exchange for a real service contrast sharply with the next case, which is...
2. ...the public official who uses an artificially constructed bureaucratic hurdle to extract a bribe from you. Do you want to pay a bribe here? In this case, you begin to weigh short-term advantages against long-term effects.
3. Next case: the civil servant who breaks the law and betrays public trust in return for payment. In this case, corruption could consist of granting exclusive monopolies, unwarranted certificates or permits, or desisting from prosecution when it is called for. Would you approve of paying here? Hopefully not.

Three very different cases, but all of these can be projected into the question above. The way to fix the question is to actually create various scenarios, to measure what people consider acceptable.

Note, also, that the responses are problematic. Yes, No, make sense. But how would we make the verbatim responses useful? This question needs to be closed, offering exhaustive options. After all, a survey is not a focus group.

Other useful features? Ask respondents whether they have relatives that work in the public sector, or for local police. Likely, this will have an impact on their views. Check whether they are on the Internet. Those that are again will have access to more information, be better informed, and likely that's a group that will look at things differently. English-speakers are different as well. Are respondents pro- or against the government? Do they have a car? Enriched in this way, this survey can yield powerful information. And, and, and...

Corruption remains important issue, but capturing what actually goes on is not entirely easy. We will keep you updated.

Georgia Post-Conflict Phone Survey | may be a first glance?

Georgian IPResearch (first time we heard of them, actually) conducted a phone poll between Aug.25 and Sept.2. 450 respondents were questioned countrywide. While we have our strong reservations about these telephone polls (they are biased towards people with phones, picking up calls from strangers, and bored enough to chat), they may serve as a preliminary indication. Here are the results:

1. Was the international community active in stopping the Russian aggression?

Yes 73.3%
No 24%
NA 2.7%


2. Which state was the most active in stopping Russian aggression?

USA 64,2%
France 20,9%
Poland 4,9%
Baltic states 2,2%
Germany 1,6%
UK 1,1%
Ukraine 0,7%
None 1,3%
NA 3,1%

3. Which organization was the most active in stopping Russian aggression?
EU 26,7%
UN 17,6%
NATO 14%
CoE 3%
OSCE 3.1%
All 5.1%
None 4.0%
NA 26.2%

4. Which is the most positive politician in stopping Russian aggression?
Nicolas Sarkozy 35.6%
George W. Bush 17.8%
Condy Rice 12.0%
Angela Merkel 7.8%
John McCain 5.6%
Lech Kaczynski 4.2%
Bernanrd Kouchner 3.3%
Mat Bryza 1.8%
David Miliband 1.6%
Barack Obama 0.9%
Other 2.8%
None 1.3%
NA 5.3%


5. Which is the most friendly country for Georgia?
USA 72.0%
France 42.9%
Ukraine 20.9%
Germany 13.6%
Poland 12.0%
Baltic states 11.6%
UK 7.8%
Turkey 2.2%
Israel 0.7%
Azerbaijan 0.4%
Other 0.6%
None 1.6%
NA 8.9%

(Respondents were asked to name max. 2 states, therefore the total number exceeds 100%)

6. Do you think that the Georgian government could have avoided Russian aggression?

Yes 42.4%
No 46.7%
NA 10.9%

7. Will Georgia receive NATO MAP in the near future?
Yes 80.9%
No 6.9%
NA 12.2%


Perhaps the most interesting part is that more than 40% of respondents think that the Georgian government could have avoided the confrontation. This means that the country might very well be split, with a lot of people thinking that what happened was a big mistake. But as mentioned, we cannot vouch for the quality of this survey.

It will be interesting to examine whether indeed so many people are critical, and who precisely they are. We are planning to conduct our own survey in the next few weeks. If you want to suggest questions that you think should be asked, let us know as soon as possible.

Housing IDPs | Lessons Learnt

In the current situation, one issue facing Georgia is what to do with and for the Internally Displaced People (IDPs) that are now coming from South Ossetia and the Kodori Gorge, in Upper Abkhazia. A friend with significant experience in development work posted a candid analysis in an e-mail group. We thought that the analysis is worth sharing since this issue affects the region.

So here is what he had to say:

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"I was speaking about this issue with some Georgian friends just yesterday. They have been involved in IDP shelter work with people from Abkhazia since the mid-1990s. I've done a bit of work with those shelters myself, and would STRONGLY encourage anybody getting involved with shelter issues now to visit some of these old shelters if they have not already done so, and not just in Tbilisi. Some of the shelters I saw in Kutaisi and Samegrelo were horrific. Families have been vegetating in them for fifteen years now, with every politician promising them return next year.

In our discussion, we came up with two big lessons learnt:

1. LESSON ONE: Don't pretend it's temporary

Yes, thankfully, most new IDPs - especially from Gori town - will go home soon. However, many IDPs in Georgia will not. It's not going to happen. Live with it. They weren't ethnically cleansed (houses burnt etc) to pave the way for their return, and Georgia lost the war. The Palestinians aren't returning any time soon, either. No idea how many people this is - let's say Kodori and South Ossetia. [...] We're prob talking 20,000 people minimum.

We should seek to identify those IDPs who will probably not go home soon, and seek durable, humane living conditions for them. Most of Georgia's old IDP shelters are a patchwork of small interventions - an NGO puts in windows, a year later, another puts in floors, two years later there's a new door. Look for yourself - this approach leads to crap results, not only in human terms, but also in terms of value for money. (Repeat assessments are one example - IDPs from Abkhazia have told me how sick they are of assessments by now.)

The key point to remember is that there will be loads of money coming in soon. After that, funds will dry up. By 2006, there was hardly any funding to be had for shelter work. Let's spend it well NOW, while there is money to be spent.

The main prob is that the GoG will probably not look favourably on this approach. IDPs in misery desperate to go home bolster Georgia's claim to these territories. One way to get round this would be to point out that should the IDPs return, the municipalities would get buildings in good shape, ready for privatization or social housing needs. Be diplomatic.

Urban Institute's voucher project was good, but the Georgian housing market was a lot less elastic than they thought. Handing out vouchers to buy flats worth 5000 dollars each to a few hundred families sent housing prices rocketing in Kutaisi (it wasn't enough to money to buy in Tbilisi or Batumi). Vouchers are not feasible on a large scale.

Privatization doesn't solve anything either. One day, your family lives in a crap shelter. The next day, it lives in a crap shelter you own. Without money to renovate, it improves security of residence, but living conditions are exactly the same. How will 50 broke families ever be able to repair their communal roof?

The way I see it, the only humane option is to (1) do large-scale thorough rehabilitation of existing buildings, or (2) to build new housing from scratch (NRC has done the latter on a small scale). A nice side effect is that such large-scale, donor-funded construction efforts will generate a lot of employment in a sector that will be badly affected by the probable fall in investment after this war.

2. LESSON TWO: Don't dump IDPs in depressed or remote areas

Placing people in "no future zones" like the town of Vani, where there is zero employment even for locals, is a bad idea. Also, some shelters in Samegrelo are in the middle of nowhere. Those IDPs who cannot escape get stuck there with nothing to do except to cry, to drink, or to do both. Some have been doing just that for over a decade now. Think poverty trap, think psychosocial problems, think domestic abuse. Also, microcredit or employment generation will not work in the back of beyond.

Maybe they should all be housed in Tbilisi?

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That's just my take, and that of some friends of mine. The history of sheltering IDPs from Abkhazia has created lots of "lessons learnt". Ask your more experienced Georgian colleagues and LNGO partners what they think, and please do visit a few shelters from the 1990s outside Tbilisi before you start knocking out funky proposals. Let's use the money that's gonna pour in now wisely, because we are not going to get a second shot at this.

I would be extremely grateful if we could hear the thoughts of more people on this."

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This, then, the comment of said person (who works in this field and therefore, for now, preferred not to be named). Any views?

Russian-Georgian Relations | Alex Rondeli on July 29

On July 29, just before the tensions in around South Ossetia began to escalate, Alexander Rondeli gave a talk at the Tbilisi Summer Seminars, a weekly lecture series which we were organizing with GFSIS and American Councils. Alexander Rondeli runs the Georgian Foundation for Strategic and International Studies (which he also set up), has the rank of an ambassador, works closely with the Georgian government, and teaches International Relations.

Rondeli talked about the Georgian Russian relationship, and suggested that ultimately this relationship puts Georgia in the near-impossible situation. For a small state like Georgia, Rondeli suggested, it is the greatest tragedy to have an old-fashioned great power next to it. In this position, a small state has no luxury to make any mistake. Americans are far, and Europe ultimately doesn't care ("they look at us the way we look at Mongolia").

Escaping Russia under those circumstances may appear like going against nature, against geography. But becoming part of Russia's orbit offers a bleak future: according to Rondeli, Georgia could never become democratic and a viable modern nation if it accepted Russia's domination. Russia had several key interests in keeping Georgia under control. First, it was a linchpin for security in the broader region, and thus part of the global competition with the United States. Georgia is the gate to Central Asia, but also for Russians the gate to the Middle East, and the path to their main ally, Armenia. Second, there was a distinct interest in keeping Turkey away from the South and North Caucasus. And then, thirdly, controlling Georgia meant asserting one's credibility with all other states. Losing Georgia, conversely, would greatly damage Russia's bullying power. Given these interests, Russia had little incentive to let Georgia thrive, and to let Georgians determine their own political orientation.

Moreover, Russia had regularly shown spite, with Putin belittling Saakashvili, asking him whether he really thought anyone would come and fight for the Georgians in the South Caucasus. Having dealt with the Russians themselves, the young government had gained a new appreciation of what Shevardnadze had had to go through in dealing with Moscow.

In this way, Rondeli argued that Georgia had little choice: while running up against Russia may appear suicidal, submitting to it entails a certain demise. Without taking some risks, there is no opportunity. Internally, the country's elite had intense and frank debates, weighing the options and ultimately coming to the conclusion that it faced either complete defeat or complete victory.

Yet Rondeli pointed out that there are several challenges to the pursuit of a successful policy: Much of the country's elite had emigrated, and Tbilisi had undergone a 'red-neckization' as a result. The current foreign policy elite ultimately remained inexperienced, unable to articulate a multivectoral policy that balances Russia with the West -- although Rondeli was doubtful whether such a policy would be feasible in the first place. Moreover, Socialism had left deep scars: "Stalin and Lenin still are deep inside of us", which in turn radicalized the government, giving it the sense that it needs to revolutionize the people, doing it fast, and not just build institutions. But even existing institutions remain weak, pushing people to turn towards a church that carries somewhat problematic political notions. All in all, this meant that there was little cohesion: in battling Russia, "we don't have the same qualities as the Finns".

In the lecture, there was no sense of an immediately impending conflagration. But Rondeli made it clear that there were sizable risks: "Misha has learned to provoke the Russians, so that they show themselves for what they are. That's quite an achievement, but we're playing with fire."

Georgia: Women's Participation in Politics

Women’s participation at all levels of elections in Georgia is diminishing. As the Caucasus Women’s Network (CWN) reports, women in Georgia were less represented in terms of candidates in the last parliamentary elections than in any previous parliamentary elections in Georgia’s democratic history. On the other hand, women’s low political participation in elected bodies belies women’s activeness in civil society institutions, where females appear to be very active.

Let’s dig deeper: during the last parliamentary elections women composed 28% of all parties’ election lists (485 out of 1757); no woman in any party was listed as the number one candidate; only three parties had women within their first five candidates.

The inequality of both women and men standing in election led to an even smaller percentage of women getting a seat in the Georgian parliament: eight from the party list and only one as a majoritarian candidate. Currently only 6% of MPs are women.

Recently CRRC conducted a survey for Transparency International-Georgia on public attitudes to see what Georgians think of their Parliament. According to the TI data, 64% of those polled agree with the statement that women should have strong representation in parliament. But about 23% of women and 26% of men think that parliament is not the place for women. These misogynists can tip the scale for majoritarian candidates, but what is the answer to the diminishing number of candidates from the party lists? Anti women sentiment in the parties, a party culture? What do you think?

CWN came up with the number of suggestions in order to achieve equal representation of both genders in the legislative body. According to CWN, it is crucial to reach balance not only in the nominated lists but in the taken seats as well. CWN believes the best way to influence and motivate political parties to respect and implement principles of equality is setting sanctions on public funding: when a difference between the number of representatives of each gender goes beyond 2% (yes, two) of the total number of representatives, their political party will be penalized. For more details about CWN finding and policy recommendations visit their website.

If you want to know more about TI Survey, let us know. Some initial data snapshots and results are already available here.