After the collapse of the Soviet Union and Georgia’s civil war in the 1990s, Georgia faced regional instability, civil conflict, infrastructure deterioration, enterprise and investment decline, and a decrease in human capital productivity. The country’s economy contracted dramatically, shrinking more than any other former Soviet Republic. Immediately following Georgia’s non-violent Rose Revolution in November 2003, the Government of Georgia (GoG) undertook a wide array of initiatives and reforms to promote stability, transparency, good governance, and private enterprise development.
When Georgia was selected as eligible to develop a compact in 2004, agriculture played a major role in the country’s economy. Over half the working-age population was engaged in agriculture as their primary form of employment. These farmers faced a host of obstacles, particularly after privatization of collective farms in the 1990s, resulted in Georgia becoming a country of small private land holdings with plots averaging less than one hectare. Farming at a scale of less than one hectare per plot translates to primarily supporting subsistence agriculture. Both farmers and agribusinesses were struggling to compete in regional markets, and the infrastructure needed to bring goods to market and facilitate trade and economic growth had crumbled. Persistent budget shortfalls, corruption, scrap metal looting, and further technical and educational support took a steep toll on Georgia’s road, water, energy, and railroad infrastructure.
As one of MCC’s first partnerships, the Georgia Compact predates MCC’s use of the constraints analysis in the compact development process.[[Beginning in 2009, MCC began undertaking constraints analyses based on the Hausmann, Rodrik, and Velasco diagnostic method in the preliminary analysis phase of each compact and threshold program.]] Instead, Georgia’s 2003 Poverty Reduction Strategy Paper (PRSP) and the Strategic Vision and Urgent Financing Priorities, 2004-2006 (Strategic Vision) served as the foundation of the MCC investments. The PRSP described the macroeconomic, structural, and social policies and programs needed to boost economic growth and reduce rates of extreme poverty. Among its priorities, the PRSP specifically targeted the development of priority sectors of the economy, namely energy, transport, communications, agriculture, and tourism. The PRSP noted that poverty in the rural regions was closely tied to the lack of financial resources and the underdevelopment of infrastructure, which together reduced the ability of the poor to access jobs and services such as energy, healthcare, and education.
In June 2004, the GoG presented its Strategic Vision,which reinforced the priorities set out in the PRSP with five main areas of action. Of note were efforts to rehabilitate the energy sector, stimulate private sector development, and promote sustainable development in the rural regions through a focus on infrastructure, trade and transport, and agriculture.
Shortly after being informed of its eligibility for MCC funding, the GoG developed a list of priority areas for economic development and began soliciting feedback from a wide variety of civil society actors. Selection of the project areas was based on a nationwide, broad, meaningful, and participatory consultative process and was led by a working group representing key government stakeholders, civil society, NGOs, and businesses in Georgia.
The GoG organized regional forums and community roundtable sessions and sponsored public comment boxes, television advertisements, radio and television talk show programs, brochures, and a documentary film as part of their consultative process. Following initial outreach, which resulted in more than 500 proposals submitted to the GoG, specific proposals were prioritized based on their likely economic impact, role in reducing poverty, and connection to policy reform goals. The GoG found a strong consensus in favor of interventions in agriculture and food processing, infrastructure, and tourism, areas around which the GoG then developed an initial project proposal. In March 2005, the Millennium Challenge Georgia Fund (MCG), in charge of implementing the compact, held a public meeting for small and medium enterprises with the Georgian Federation of Businesses. MCG reached out again in April to explain its proposal for the Samtskhe-Javakheti road, gas supply pipeline, and the regional infrastructure development facility directly to stakeholders in those project activities.
Georgia’s compact development process was conducted prior to MCC's adoption of the Gender Policy (2006) as well as MCC’s Gender Integration Milestones and Operational Procedures (2011). These documents describe the institutional mandate and operational requirements to integrate gender and social inclusion from the beginning of the compact development phase throughout implementation. Since the Georgia Compact was one of MCC’s first partnerships, it did not benefit from MCC’s current approach to social inclusion and gender equality. Consequently, MCC’s compact development process did not incorporate an analysis or more fulsome discussion of the distributional impact of the investments and differentiated socio-economic outcomes of this compact.
At a Glance
- Original Compact amount:
$295.3 million - Amended Compact amount:
$395.3 million - Amount spent:
$387,178,519.76
- Signed:
September 12, 2005 - Entry Into Force:
April 7, 2006 - Compact Amendment Date:
November 20, 2008 - Closed:
April 7, 2011
- 4,591,582Estimated beneficiaries at compact close over 20 years
- $112.2 million (2005 USD)Estimated net benefits at compact close over 20 years[[Net benefits refer to discounted benefits minus discounted costs at a 10% discount rate]]
Estimated benefits at compact close correspond to $395.3 million of compact funds, where cost-benefit analysis was conducted.