Significance
of the Problem: Among the priorities of economic development
strategies of Georgia, the main focus is made on agricultural development. The
state is trying to ensure sustainable development of agriculture by various
means and programs. On the background of separation of competencies, needed for
the development of the sector, land reform acquires special importance. Land
reform is accompanying the self-governance reform, which implies transfer of
the state owned land to the self-governments. This is a precondition for
regional development. Land reform requires evaluation of land resources, as property,
fixing the real price of land, ensuring establishing various property rights on
land, putting land market in motion
. Most of agricultural land area is arable,
pastures, areas for making hay, lands with perennials, etc. Land as a resource for countries with little
land should be discussed not as a source of income from primary or secondary
land markets, but as a resource by effective usage of which food security and
sustainable development of agriculture can be achieved. According to the
National Statistics Office of Georgia, as of 2012 the total area of
agricultural land in Georgia amounted to 2.389.286 hectares – 133.645 hectares
in private ownership and 1.288.878 hectares in state ownership. As of the third
quarter of 2013, the share of agricultural product in GDP of Georgia was 9.4%.
Since 2009 the sector has had a growing tendency, though its share in GDP has decreased.
In addition, considerable part of Georgia’s population is employed in agriculture;
prices on agricultural land differ according to its types. Consequently, the
analysis of influence of the land market tendencies on agricultural development
is quite a problematic issue.
The
Objective of the Research is to identify the causes hindering the land
market development in Georgia, assess the results of these causes and offer
recommendations for effective land reform and raising efficiency of
agricultural production.
Following
objectives have been set based on research goals:
·
Study of natural, economic and legal condition of
the land;
·
Analysis of land use registration, quantitative
and qualitative data on land, economic indicators of land and dynamics of land
prices;
·
Identification of trends and challenges existing
at the land market based on studying the
factors defining market price of the land, dynamics of incomes gained from land privatization,
land tax, land rent etc.
Research Methodology:
for research purposes,
based on land management documentation (cadastre), we will study natural,
economic and legal conditions of land; registration of land use, quantitative
and qualitative indicators of land, indicators of economic assessment of land,
land price dynamics, the factors determining market price on land, dynamics of revenues
from land privatization, land taxes,
land leasing revenue dynamics, etc. The indicators will be analyzed in
correlation with the dynamic indicators of agriculture.
Analysis
of existing condition: in the process of Soviet Union demolition, in
early 1990-ies, the value of total land area of the republic of Georgia
approximately amounted 30 billion Manets, that was 41% of national wealth[1]. While, based on 2010Y data, national
wealth of Georgia approximately amounts 900 billion USD, out of which only 6.7%
belongs to land i.e. about 60 billion USD in value.
The area
of total agricultural land of Georgia equals 342 thousand hectares, out of
which 112 thousand hectares are privately owned[2].
According to 2013Y data of National Statistics Agency of Georgia, rural
population of Georgia is about 46% of the total population (2 073 000 people), thus, considering
agricultural land resources Georgia is considered a poor-land country.
Despite
high share of rural population, based on 2013Y data the share of agriculture in
GDP is only 9.3%. Production of agricultural products is characterized with
growth tendency and amounted 3
363
million GEL by 2013.
Necessary condition for the development of
agriculture is the land price growth. The main reason of land price decrease is
the land privatization. Increase of land price is possible through solving the
problem of excessive supply at the market. The state still owns 272586
hectares of land, while separate municipalities own 3553 hectares of land that
should be put on sale at the market. The mentioned data includes agricultural
area, grassland, and perennials' area.
As regards pastures - 1016291 hectares, municipalities own 130092
hectares)[3].
The study has shown that during last two years, 19 346 hectares of agricultural
land was transferred to private ownership through market mechanisms, while the
sum obtained from privatization amounts 21,49 million GEL.
Due to policy carried out in agrarian sector up
to 2012, critical situation was created. Index of production of agricultural
product per capita has extremely dropped. Particularly, according to data of
FAO (Food and agricultural Organization) of the United Nations, among former
Soviet Republics, in 2003-2009YY, Index
of production of agricultural products per capita in Georgia decreased by 29%,
that is the worst index among 194 countries in the world.
Annual
decrease of cultivated land might be considered as one of the reasons of such
reduction. Substantial decline in productivity of agricultural crops is
related not only to the objective conditions (obvious change in climate), but
also to vulnerability of agro-technical terms and cultivation technology, disregard
of the scientific achievements and new technologies, and absence of targeted
rural-agricultural policy.
Inefficient
policy of land market regulation is one of the main factors defining negative
tendencies in the development of agricultural sector. In 1995 and later years,
tens of thousands acres of high-intensity land were taken at a lower category
by local authorities without prior laboratory tests. On the basis of the legal framework created in 2013,
the law on local self-governments adopted prior to local elections of 2014,
defines demographic, geographic, infrastructural, economic, social and cultural
frame-criteria for territorial organization of municipal self-governments.
Particularly,
(a) Private land ownership is
indivisible element of effective agrarian sector;
(b)
For
effective distribution of the land resources among entrepreneurs land turnover
and land shares are necessary;
(c) Land turnover must be regulated. Regulation
of deals regarding land parts must be maximally simplified;
(d) Regulation of land turnover must
consider retention of the most valuable agricultural land for agrarian
production in order to protect it from increased fragmentation of ecologic
and land use;
(e)
Various
climate and demographic conditions of Georgia allow to partially violate state
norms with regard to land turnover unless they contradict to the constitutional
norms;
(f)
Formation
of private ownership of the land is essential for increased solvency of
agricultural sector;
(g)
State
ensures land registry which is open to all economic subjects.
In the
process of land market research, three types of land markets have been
considered as assets:
1)
"State market" (primary);
2) "Forced market”(property confiscated
by enforcement agency);
3) "Private market" (physical and legal entities - private owners
- i.e. secondary market).
For the primary market, the
research covers privatization auctions of state owned assets (land) in the
period of November 15, 2010-2012. Private and forced market auctions within the
period of January 1, 2011-November 15, 2012. It is noteworthy that 2013Y data
are not available due to declaration of moratorium on land sales.
Results of 1631 auctions on
privatization of state owned land, 381 "forced market" auctions and deals
of private owners at the "secondary market" have been studied within
the research period by means of electronic auctions.
Research
results are shown in Diagram 1. The research has shown that the
change tendency in the price of 1 sq/m land is not revealed explicitly. The
mentioned indicates that during the research period, despite the season of
agricultural production, formation of private property is developing in
unspecific environment.
At the "primary market"
despite varied excessive supply of land, the price poorly reacts to it that
does not correspond to market laws (free exchange and price formation).
During the research, as a result
of observation of time periods, an interruption of privatization period has
been revealed at the "primary market". During March 26-May 31, 2012
land privatization auctions were not held, that indicates that "primary
market" was stopped for total of 65 days (See. Diagram 1). This period is
very important and interesting for observation, when only "forced"
and "secondary" markets were functioning. This short period had positive influence on activation of
these two markets and has increased their competitiveness.
Data of "forced market"
is shown in diagram 2, where it can be seen that, due to cessation of
"primary market" considerable increase in the price of 1 sq/m
agricultural land, as well as competition has been observed through active
participation in the auctions (auction bids).
Based on example of "forced
market", the price of 1 sq/m land has increased up to 0,52, while after
renewal of privatization (primary market) it decreased again that can be seen
if we compare 1st and 2nd diagrams.
Diagram 2.
The price of 1 sq/m land sold
through forced auctions by months, 2010-2012YY [5]
The same situation was seen at
the "secondary market" for the given period, where the land price
sharply increased and unlike forced market it was followed by supply reaction,
as the secondary market is the one truly based on real competitiveness, and
acts based on market principles and mechanisms.
Conclusions: As
a result of the study, it has been determined that there are three land asset
markets in Georgia: "state market" (primary), "forced
market" (property confiscated by enforcement); "private market"
(secondary market of private owners).
Interdependency
of existing markets defines formation of private ownership of land and its
further free use-disposition, which on its side brings us to economic freedom
and its degree.
·
Based on the research of land assets, despite
changing excessive supply of land at 'primary market" the price poorly
reacts to it that contradicts to market laws. The number of held auctions at a
particular market must have inverse proportional effect on the price; though
the study revealed that such distinct natural dependence is not seen. Thus, the
number of auctions at "primary market" cannot influence value of
asset. With regard to the above-mentioned we reckon that in reality there is a
duplicated market, where "primary market" impedes functioning of the
"secondary market".
·
The fall of land assets' value in Georgia is
caused by privatization. Excessive supply was resulted in almost zero level
prices. Considering the given low prices, the land as an economic asset cannot
attract capital, which is necessary for production processes and thus,
investment warranty does not take place.
·
Thus for actual formation of private ownership of
the land and increase of land assets price it is necessary to decrease the
excessive supply of land to the market as a result of privatization. Growth of
demand increases their price. It would be unreasonable to stop this process,
thus it is necessary to rapidly complete the privatization process.
·
For formation of private property of the land and
increased activity of the secondary market it is necessary to transfer state
property into private property. Diversification of the property is the most
effective mechanism for protection of the property i.e. the state must take
care of distributing the assets among private owners. In Georgian reality, due
to low buying capacity of the society, the most effective way of transforming
state property into private property is its free transfer to the country's
citizens.
Literature:
1.
Archvadze I. The National Wealth of Georgia and
its elements, Tbilisi, "Georgia" 1992, p.76
2.
National Agency of Stastistics of
Georgia, "Agriculture of Georgia 2012" statistical publication,
Tbilisi 2013, p.15
3.
Ministry of Economics, Center for Economic Policy
Experts, working documents: Brief analysis of
land disposition in state ownership, author: Ramaz Gerliani, Ketevan
Krialashvili, 2013
4.
Dissertation - influence of economic freedom on
the economic growth indicators, Ramaz Gerliani, Ivane Javakhishvili State
University, Tbilisi, 2013, P.80
5.
www.epec.ge
6.
www.macne.ge
7.
www.eprc.ge
[1] Archvadze I. The National Wealth of Georgia
and its elements, Tbilisi, "Georgia" 1992, p.76
[2] National
Agency of Stastistics of
Georgia, "Agriculture of Georgia 2012" statistical publication,
Tbilisi 2013, p.15
[3] Ministry of Economics, Center for Economic
Policy Experts, working documents: Brief analysis of land disposition in state ownership, author:
Ramaz Gerliani, Ketevan Krialashvili, 2013
[4] Dissertation - influence of
economic freedom on the economic growth indicators, Ramaz Gerliani, Ivane
Javakhishvili State University, Tbilisi, 2013, P.80
[5] Dissertation - influence of
economic freedom on the economic growth indicators, Ramaz Gerliani, Ivane
Javakhishvili State University, Tbilisi, 2013, P.80
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