Georgia - Industry

Heavy industry, based on the country's mineral resources, predominates, and includes metallurgy, construction materials, and machine building. Light industry includes food processing, beverage production, consumer durables, garments, and oil-processing. Hyperinflation in 1994 together with continuing political unrest severely affected industrial production. By 1995, industrial output of state enterprises was one-fifth of the 1990 level. In 1996, although industrial production rose 6% for the year, less than 20% of the country's industries were operating, most at less than 15% of capacity. In 1997 another improvement, of 7%, was recorded but in 1998, due mainly to the financial crisis in Russia, industrial production fell 2%. By the end of 1998, the privatization of small businesses was largely completed, with over 12,860 becoming privately owned. Among the large state enterprises, about 1,200 had been changed into joint stock companies, 910 of which have since been privatized. Despite a model legal framework for the privatization of its enterprises, industry in Georgia had only been 15.2% privatized as of 2002, with the construction industry at about 18.5%, mainly because of a lack of buyers. The least privatized sector is energy, where, according to a recent USAID assessment, the infrastructure borders on catastrophic failure. Growth in industrial production returned in 1999 and 2000, at 7% and 11%, respectively, but in 2001, there was a decline of 5%, due, externally, to declining export demand in non-CIS countries, and, internally, to the shutdown of most of Georgia's refinery production. Before independence, Georgia had serveral refineries, but by 2001, it had only two: one at the Black Sea port of Batumi with a 106,000 b/d capacity, and the other, a small 4,000 b/d refinery built in 1998 near CanArgo's Ninotsminda oil field called the Georgian-American Oil Refinery (GAOR). In 2001, the GAOR operated only between July and September, and at less than 50% capacity. In September 2001, CanArgo shut it down, announcing plans to build a $200 million refinery in its place that would have a 30,100 b/d capacity. In 2002, the Batumi refinery was also closed, undergoing a $250 upgrade and and expansion directed by the Mitsui Corporation. As a result, Georgia has been obliged to import over 90% of its petroleum products. Mitsui has undertaken the work without Georgian govenment guarantees of its investment. The lack of such guarantees caused two other Japanese companies, Marubeni and JGC, to drop out of the project. Georgia's most promising development industrialIy came in December 2002, when agreement was anounced for the constuction of Georgia's part of the Baku-Tbilisi-Ceyhan (BTC) pipeline, with construction to begin in March 2003.