By Michael Fuenfzig, on February 21st, 2012, in Georgia, Trade,  Recently the Georgian National Investment Agency launched the internet portal Trade with Georgia. This internet page aims to facilitate exports by providing information to Georgian firms on export procedures and regulations, and by providing potential foreign buyers with a database of Georgian products.
The customs reforms that lowered and abolished import tariffs, and reduced bureaucratic import procedures are well-known; at the same time export procedures have also been simplified. Of course one obstacle remains: Georgia can reform its export procedure, but it has little say on the corresponding import tariffs and bureaucratic procedures and regulations of partner countries.
In the World Development Report 2009 (page 251), the World Bank reports on an interesting export facilitation project in Peru:
In many countries small enterprises are often excluded from export chains because they operate in villages or small towns or do not have the needed information to export. In Peru a trade-facilitation program called “Easy Export” connects small producers to markets. The key to this program is the most basic of transport networks—the national postal service.
How does it work? An individual or firm takes a package to the nearest post office, which provides free packaging. The sender fills out an export declaration form, and the post office weighs the package and scans the export declaration form. The sender pays the fee for the type of service desired. Goods with values of $2,000 or less can be exported. The main benefit is that the exporter does not need to use a customs agent, logistics agent, or freight forwarder or to consolidate the merchandise; even the packaging is provided. Firms or individuals need only to go to a post office with a scale and a paper scanner and to use the Internet to complete the export declaration for the tax agency.
Has it made a difference? Within six months of inception, more than 300 firms shipped goods totaling more than $300,000. Most users are new exporters—micro entrepreneurs and small firms, producing jewelry, alpaca and cotton garments, food supplements (natural products), cosmetics, wood art and crafts, shoes and leather, and processed food. And many of them are in the poorest areas of the country
While the aggregate impact might be small, it can make a difference for small firms or individual entrepreneurs. One might question whether the Georgian Postal Service is capable to provide such services, especially in rural communities. One could also question whether small producers are capable of overcoming formidable barriers such as phyto-sanitary regulations or the lack of information on Georgian products. Nevertheless such a project could work if government agencies provide services which small firms and individual entrepreneurs are not capable of providing: marketing, dissemination of information and quality certification for agricultural products.
From Eurasianet:
The Azerbaijani developer Avesta plans to stick the 1,110-meter-high (about 3,642- feet-high) building on a chain of artificial islands off Azerbaijan’s Caspian Sea shore. Completion date: by 2019. The tower — named, not surprisingly, “Tower of Azerbaijan” — is expected to house hotels and business centers.
While it is unclear whether this project will ever be realized, it certainly shows that Azerbaijan has huge ambitions. Comparisons to Dubai come to mind, as a city with attention-grabbing architectural projects. More importantly, Dubai might serve as a role model of a place that claims to have successfully diversified away from oil.
But this might not be the end of the story, as Eurasianet also comments that,
One British investment bank, though, recently warned against skyscraper mania. Barclays Capital found an unhealthy correlation between construction of the world’s tallest buildings and financial crisis. Such projects, the Bank argues, come in the middle of a brewing economic meltdown and represent a widespread misallocation of capital.
Fortunately for Azerbaijan and any other skyscraper builders, such an unhealthy correlation does not seem to exist, at least if one believes this recent study by three economists at Rutgers University. Contrary to Barclay capital and common perceptions, they find that height and economic booms are only weakly correlated, and that building height is not a predictor of coming economic bust.
Of course one might also ask what the point of building the tallest skyscraper in the world is. One could argue that this is an expensive folly, given that building costs increase disproportionally with building height. On the other side, firms are willing to pay higher office rents in taller buildings – offsetting the higher construction costs. There are two reasons to do so. One, firms that rely heavily on face-to-face interactions might be more productive if all employees are clustered in one building. Second, the prestige associated with being in a tall building might generate a reputation effect for firms. A study by Dutch economists sheds lights on this question. While both effects are important, the reputation effect is much more substantial for the very tallest buildings.
Of course in the context of the Tower of Azerbaijan or other very tall skyscrapers this does not even include the reputation effect that will accrue to the country. A costly project for sure, but not a harbinger of an economic bust either.
How much foreign wealth does a country really have? In the Balance of Payments Accounts, the net foreign wealth is essentially the difference between the assets held by the country’s residents abroad and the country’s liabilities to foreigners, valued at the market price in each given year. If this number is negative, then the country is a debtor to the rest of the world, and needs to generate enough surplus output in the future to pay back foreign investors.
The change in net foreign wealth in any given year reflects the extent of country’s borrowing or lending and provides information to foreign investors about the state of country’s finances. If net foreign wealth is sufficiently large and negative, this may catalyze a run on the country’s assets – a financial crisis.
Certainly, there has been no shortage of financial catastrophes in the last few decades. One prominent example was the Latin American debt crisis in the 1980s, when the large economies, Brazil, Argentina, Mexico accumulated significant external debt amounting to about 50% of the GDP of the entire region. The crisis that followed was fueled by the investors’ lack of confidence in the countries’ ability to repay their growing foreign debt, given their economic growth prospects and the costs associated with servicing the debt.
The recent European debt turmoil reminded us once again, that while there is no magic number after which the debt/GDP ratio becomes unsustainable, it is still important to keep the ratio in check.
In the last few years, even before the 2008 sub-prime crisis, the growing external debt levels of the United States came under close scrutiny. The US was the largest debtor in the world, and the stock of debt was growing fast. Yet, despite the doomsday scenarios, the predicted big crash did not materialize. Not even in the 2008-2009, when the US economy was clearly in the midst of the “Great Recession”. Continue reading →
Please have a look at the above photo of the beautiful Kura River with the Sameba Cathedral in the background. Now, contemplate the picture for another 10 seconds and ask whether something suspicious is part of the scenario. Have you recognized it? Right, there are no rescue ladders at the waterside edges. If someone falls into the water, there is no way to get out again. The picture shows just a cutout of the view, but when standing on Saarbrucken Bridge, looking down at the river, you will see no possibilities to get out of the water anywhere! About 300 meters away, there is some metal scaffold installed at the waterside edge, potentially saving the life of somebody who, for example, was pushed into the water by some rowdies in the park strip next to the Kura. Yet this scaffold is fixed well above the water level and I am not sure if you can reach it when swimming. Furthermore, if you are in the water at night time, you will not see that structure, and the water may be so cold that swimming 300 upstream requires considerable fitness.
Before I go on with my plea for safety thinking, let me define what I mean by that term. Safety thinking is definitely not pessimism. A pessimist is someone who expects negative scenarios to occur. A safety thinker, on the other hand, is someone who does not expect the negative scenario, but is prepared for it, even if its unlikeliness is not denied. A safety thinker will take precautions also for the improbable case.
Note that usually the implementation of safety measures is not particularly costly. Installing metal ladders which lead out of the water every 50 meters is well within the financial capabilities of a city like Tbilisi. The same holds true for many other striking examples. Construction site safety is but a joke in Tbilisi. Not long ago, there was a major construction site on the square one enters when leaving the Marjanishvili metro station. Huge excavators, cranes, and all kinds of other scary construction vehicles were operating on the square, and pedestrians had to find their ways through this turmoil. There was neither a bypass nor a barrier which separated pedestrians from the construction site. At one point, hundreds of people had to cross a trench via a 50cm plank, and an old woman was afraid to go ahead and blocked the way. A shameful scene which lasted until somebody jumped into the trench (which had a depth of about a meter and was very muddy) and gave her a hand. It wouldn’t increase the cost of building in Tbilisi if one would obligate construction companies to assign pedestrian bypasses and set up safety barriers. Given the many police officers patrolling in Tbilisi’s streets, it wouldn’t yield additional costs to enforce such standards either. Regarding car traffic in Tbilisi, you find tons of similar examples.
My impression is that the development of safety thinking is positively correlated with the development of an economy. This is a paradox, as expected utility theory would predict that risk aversion goes down when the wealth goes up (or, stating it reversely: the less wealth I possess, the more risk averse I should be). Indeed, this directly follows from the law of diminishing marginal utility: The more I have of something, the less I value an additional unit of that something. An additional million dollars is more worth to a pauper than it is to Bill Gates. Conversely, this means that losing something is the more painful the less one possesses. However, all my experience says the opposite: relatively poor people take high risks by neglecting safety standards.
Interestingly, Prospect Theory of Kahneman and Tversky does not give rise to this paradox, as the point of reference is not the absolute wealth level, but the status quo of the decision maker. Dear reader, if you have an idea for a measurable variable which could serve as a proxy for safety thinking, please contact me. I would like to check empirically whether safety thinking is indeed negatively correlated with the per capita GDP. We could write a joint paper! Continue reading →
One thing few visitors to Tbilisi fail to notice is the rich and layered architectural heritage of the city. There are medieval churches in Old Tbilisi. There are art noveau buildings in Sololaki. There is Stalinist architecture in Vake. And there are modernist experiments such as the Wedding Palace or the former Transportation Ministry Building. But at the same time this rich architectural heritage is threatened – either left to decay or destroyed or overwhelmed by new building developments.
One worrying development is the proposed reconstruction of Gudiashvili Square in Sololaki. One of the loveliest squares in Tbilisi, a proposal by an Austrian architectural firm would completely destroy the historic substance and the unique atmosphere of the square. Fortunately this proposal caused a firestorm of protests by concerned citizens, and Tbilisi city hall denied that this project will be implemented and is not more than just a private competition without any bearing on the future of the square. Although the architectural firm Zechner & Zechner claims that “The result of the study will be the basis of an intense discussion and process together with interested participants and the urban government“, so far they do not seem to be interested in any discussion of their project. Neither were they available for comment, nor do they seem to have responded to concerns raised in the Georgian press. This leaves the future of Gudiashvili Square uncertain, and forces everyone to speculate and assume worst-case scenarios.
What should city hall do? Is it even their business to meddle in private real estate projects? Shouldn’t entrepreneurs and investors know how to best use land or buildings? The short answer is yes, city hall should intervene and should restrict private investors.
Economic theory provides at least two justifications for a heavy involvement of city hall in real estate projects, in other words, active and interventionist city planning. One is that historic buildings and structure are a public good. While the owner enjoys some of the benefits of the building, others will too – passers-by, tourists and citizens. Even better, one person’s enjoyment of the historic building does not diminish the enjoyment others derive from it. While the owner might capture some of the benefits accruing to others by charging entrance fees, or higher rents, he will not be able to capture most of these benefits. This means that the social value of the building is higher than the value to the owner, who will probably underinvest in the maintenance from a society’s point of view. This gives a role to city hall.
The other justification is that real estate projects cause externalities. Suppose an investor destroys a historic building and replaces it with a new and unattractive structure. This would harm the owners of other buildings or businesses relying on tourists. All these costs imposed on others will be ignored by the investor, implying that there will be more than is socially optimal building projects. Again, this gives a role to city hall.
Didube bus station, 2007
What would Christmas be without a Christmas tree? In Georgia, in Europe or anywhere else in the world. But little known to most Europeans, most trees sold in Europe can trace their origin to Georgia. It is the seeds of the Nordmann fir which are exported from Georgia to Christmas tree farms in Denmark, Germany and other countries. Why? The Nordmann firs from the mountain regions of Georgia are some of the finest in the world – what Bordeaux is for the wine world, Ambrolauri in Racha is for Christmas tree producers.
Already in the 1960s Danish and German Christmas tree farmers travelled to what was then Soviet Georgia to explore the tree population and to develop trade relations. The business is not pretty. The best Nordmann firs grow at altitudes between 900 and 2200 meters, and have a height of up to 60 meters. The cones have to be harvest from the tree, which means that pickers have to climb up – a dangerous and very tough job. Safety equipment is rarely used, and each year pickers die. They are paid little, but living in one of the poorest regions of the country there are few alternatives.
For one kilogram of seeds, up to ten kilogram of cones are needed. Pickers are paid around two Euro per kilogram of seeds. Intermediate traders holding licences sell one kilogram of seeds for 25 Euro to Europe, where the seeds are traded at a price of around 100 Euro. One kilogram of seeds produce up to 5000 Christmas trees – after five to ten years of growing. In a season of one to two months a picker can make up to 1000 Euro, enough to attract hundreds of pickers to Racha, too many given how dangerous and tough this job is.
How will I celebrate Christmas this year? With a Christmas tree of course, grown in Germany or Denmark with seeds that have travelled all the way from Georgia five or ten years ago. Merry christmas to all of you!
|
|
