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Sustaining reform momentum will help Georgia harness innovation to move up the value chain and reach its sustainable development objectives, new UNECE findings show

Sustaining reform momentum will help Georgia harness innovation to move up the value chain and reach its sustainable development objectives, new UNECE findings show

Peace bridge in Tbilisi, Georgia

Georgia went through a difficult first decade of transition after independence in 1991, facing one of the deepest economic slumps in recent history. 2003, however, marked a turning point, triggering reforms that turned Georgia into one of the most open, well-governed transition economies in the UNECE region. The regulatory climate for doing business ranks among the best globally, and Georgia has become a vibrant trade hub, attracted significant investment, and clocked up strong, albeit volatile, growth over the past decade.

Sustaining this momentum, however, will be challenging. Georgia relies on a narrow range of resource and commodity exports, credit growth, and remittances from abroad – all subject to fluctuation that leave the economy vulnerable. Diversifying and upgrading economic activities will be central for long-term sustainable development. Central to this effort is to enable and encourage innovation – that is, experimenting with and absorbing ideas systematically to find out what works and scale it up. While there are several positive signs that this is taking place, such as innovative start-ups, the challenge for innovation policy and Georgia overall is to make this dynamic systematic throughout the economy, governance, and society.

Georgia is partnering with UNECE to respond to this imperative through, inter alia, two new flagship publications with concrete recommendations – a Sub-regional Innovation Policy Outlook and the Innovation for Sustainable Development Review of Georgia. In opening a high-level webinar on 16 December alongside Mr. Avtandil Kasradze of Georgia’s Innovation and Technology Agency (GITA), Ms. Olga Algayerova, Executive Secretary of UNECE praised reform efforts in Georgia:

“The publications and today's discussion come at a critical moment. The COVID-19 crisis has hit member states with economies in transition, such as Georgia, particularly hard. Aside from the health crisis itself, Eastern Europe and the South Caucasus (EESC) faces a substantial slump in growth and a need for sharp increases in public spending to care for the vulnerable and keep the economy afloat. In short: we have to do more with less… Georgia stands out as a star reformer in the sub-region and is now one of the most open and easiest places to do business in the region. Georgia attracted significant investment and has become a vibrant trade hub. Given its tradition of high levels of educational attainment and a strong entrepreneurship culture, Georgia is on the right track for innovation-driven development.”

The new Sub-regional Innovation Policy Outlook (IPO) of the United Nations Economic Commission for Europe (UNECE) reviews and compares innovation performance and governance across Eastern Europe and the South Caucasus (EESC). Complementing quantitative composite indices, the IPO compares innovation ecosystems in six countries with similar economic, structural, legacy and institutional features, challenges, and opportunities.

The Innovation for Sustainable Development Review of Georgia (I4SD Review) takes a deeper, country-specific look at the actors and dynamics of the innovation system, mechanisms for innovation governance, and the range and effectiveness of support mechanisms in place or underway. This includes both a broad overview and an in-depth examination of specific areas: industry-science linkages, innovation-enhancing procurement, and private sector dynamics.

Several building blocks of a national innovation system are already in place in Georgia. The country shows a strong political and societal commitment to innovation – the term features prominently on the political agenda and several important steps, such as setting up the Georgia Innovation and Technology Agency (GITA), show the way.  Impressive reform over the past decades has radically improved the business environment and opened up the economy. This sparked strong investment in a range of new opportunities, which, together with rising consumer spending, drove strong, albeit volatile, trade and economic growth over the past decades and saw the rise of a growing start-up scene. Strengthening this momentum will allow Georgia to take full advantage of a range of economic opportunities, underpinned by its easy access to markets, strategic location, diaspora, and moderate wages.

Strengthening this system further to enable and promote a dynamic where actors consistently and continuously try out new ideas and diffuse them across society will be essential for sustainable development. Market seeking investment in sectors, such as banking, construction, and retail, underpinned much of the growth of the past decades – opportunities that are approaching diminishing returns as fiscal space decreases. Slowing and at times negative productivity growth show this clearly. To counteract this, Georgia must take steps to intensify innovation well beyond the realm of technology start-ups. This involves improving cross-sectoral and cross-border linkages and knowledge flow, improving educational quality and labour market skills, and investing into public research that can have catalytic effects.  Public procurement is a potentially potent but underused lever to catalyse experimentation, while improving managerial, technical, and organizational capacities through market support institutions in the private sector will be essential to absorb and put into practice new ideas.

Creating the policies, institutions, and processes for such an innovation system requires innovation in governance as well. Closer coordination and regular monitoring and evaluation of science, innovation and private sector development policies and instruments are important to ensure these measures play a catalytic role, making sure more experimentation takes place than otherwise. Policies, institutions, support mechanisms, and processes have to be flexible, able to respond to emerging opportunities, remove constraints, and provide support that is truly catalytic, that is makes sure that more experimentation with ideas that could have strong potential social return, such as employment and demonstration effects, than would be the case otherwise.

UNECE developed the Sub-regional IPO and Innovation for Sustainable Development Review methodology under the guidance of the UNECE Team of Specialists on Innovation and Competitiveness Policies. The IPO and Innovation for Sustainable Development Review of Georgia were launched it at a high-level event on 16 December 2020.

Some of the key policy challenges and recommendations for Georgia identified by the IPO and I4SD Review are summarized at Annex 1.

Annex 2 provides an executive summary of the I4SD Review of Georgia. Annex 3 provides an overview of the IPO approach to innovation benchmarking, and its application to Georgia.

Countries: Georgia

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