Caucasus Business Projection Industry Update Quarter 3 2012

  • May 2014
  • -
  • Business Monitor International
  • -
  • 52 pages

Includes 3 FREE quarterly updates

Composite Rating
The composite rating is an unweighted geometric mean of the short-term political and short-term economy ratings, allowing a ranking of all countries in BMI's emerging industry s universe. Political Ratings The political ratings are an indicator of political stability, seen as a pre-requisite for a stable economy and business environment. The long-term political rating considers more structural elements such as: Is there a functioning democracy? Are there free and fair elections? Is there separation between party and state? Have recent governments pursued similar, enlightened policies amid a stable political environment? The short-term political rating considers more transient influences such as: Have there been recent large-scale demonstrations or strikes? To what extent have these threatened the political status quo? Is unemployment currently a potential source of political instability? What is the current position in the political cycle – to what extent is this contributing to political risk? Is the government having trouble passing legislation?

Economy Ratings
The economy ratings assess the degree to which the country approximates the ideal of non-inflationary growth with contained fiscal and external deficits and manageable debt ratios. The ratings use as raw material historical data and projections fed in from BMI's country databases: as historical data are revised and projections change, so the ratings change. Factors in the long-term rating include Gross Domestic Product growth, unemployment, inflation, real interest rates, exchange rates, the fiscal balance, the current account balance and external debt. A number of other structural factors are also thrown into the equation, including dependence on the primary segment, reliance on commodity imports, reliance on a single export segment and central bank independence. The factors included in the short-term rating are a subset of those in the long-term rating.

Business Environment Rating
The business environment rating is a broad indicator of the investment climate, for both domestic and foreign players. While areas such as competitiveness, finance, openness and environment comprise the bulk of the rating, there is also an important feed from the political and economy ratings. The factors considered include: the state of the national infrastructure, the education system, cronyism/ corruption, red tape, the legal framework, property rights, industry access and the corporate tax regime.

Table Of Contents

BMI Ratings 5
BMI Risk Ratings - Armenia6
BMI Risk Ratings - Azerbaijan.7
BMI Risk Ratings - Georgia8
BMI Risk Ratings - Emerging Europe Data s10
Executive Summary 11

Core Views
.11
Major Projection Changes....11
Key Risks To Outlook...11
Chapter 1.1: Political Outlook - Armenia.... 13
Domestic Politics.... 13
Political Unrest May Last Well After The Election...13
We continue to see scope for more social unrest even after the May 6 2012 parliamentary election, in which the ruling Republican Party
of Armenia is widely expected to secure the majority of the vote.
Long-Term Political Outlook. 14
Mitigation Of Regional Tensions To Boost Stability....14
Armenia will continue to have difficult relations with neighbours Turkey and Azerbaijan through the medium term, as a result of sensitive
historical grievances and strong domestic pressure groups on both sides.
Chapter 1.2: Economic Outlook - Armenia 17
Economic Activity... 17
Still A Long Way Away From A Full Recovery....17
Despite plenty of room for Armenia's economy to recover following one of the most severe recessions in the world in 2009, we see few
signs to indicate that the higher-than-expected growth rate in 2011 can be sustained into this year.
TABLE: Gross Domestic Product BY EXPENDITURE, REAL GROWTH %...17
TABLE: ECONOMIC ACTIVITY....18
Monetary Policy.. 19
Central Bank To Keep Policy Synchronised With Russia19
Although declining inflation is providing scope for more aggressive monetary easing, we believe that the Central Bank of Armenia will be
wary of renewed inflation pressures in H212 and the prospect of a weaker dram relative to the Russian rouble.
Chapter 1.3: 10-Year Projection - Armenia... 21
The Armenian Economy To 2021.... 21
Convergence To Continue.21
Our positive medium-term view on the Armenian economy continues through our long-term projection to 2021.
TABLE: ARMENIA - LONG-TERM MACROECONOMIC FORECASTS.21
Chapter 2.1: Political Outlook - Azerbaijan 23
Domestic Politics.... 23
International Focus To Illuminate Poor Political Risk Profile....23
Political risk in Azerbaijan remains at elevated levels, with the characteristics of polity and scope of state being weighed down by an
authoritarian government and the recent intensification of tensions with Armenia over Nagorno-Karabakh. .
Long-Term Political Outlook. 24
Everything Hinges On Nagorno-Karabakh24
Attempts to win back the Nagorno-Karabakh enclave will remain the defining issue of Azerbaijani foreign and domestic policy through
the medium term.
Chapter 2.1: Economic Outlook - Azerbaijan.. 29
Economic Activity... 29
Return Of Oil Output Capacity Will Prompt Growth Recovery...29
Higher oil output capacity following major shutdowns last year will see Azerbaijan's economy return to some moderate strength in 2012.
TABLE: ECONOMIC ACTIVITY....30
Chapter 2.3: 10-Year Projection - Azerbaijan.... 31
The Azerbaijani Economy To 2021. 33
Trend Growth Will Be Lower Over 2017-202133
Over our 10-year projection period to 2021, we believe Azerbaijan's economy will remain on a positive trajectory. Undoubtedly, energy
exports will continue to be the key driver underpinning growth.
TABLE: LONG-TERM MACROECONOMIC FORECASTS..33
Chapter 3.1: Political Outlook - Georgia 35
Domestic Politics.... 35
Saakashvili At Risk Of Alienating His Support Base...35
The government led by Georgian President Mikheil Saakashvili looks well placed to secure a solid majority in the upcoming
parliamentary election in October 2012.
Long-Term Political Outlook. 37
Pro-Western Path To Continue ..37
We expect tensions between Georgia and Russia to gradually subside over the next 10 years, but highlight that the potential for social
unrest in border areas will remain pronounced.
Chapter 3.2: Economic Outlook - Georgia. 41
Economic Activity... 41
Stable Growth Outlook, But Russia Ties Key41
Strong investment flows and plans to part-privatise Georgia's railway market should help to maintain relatively robust expansion levels
in the economy over the next few years.
TABLE: ECONOMIC ACTIVITY....42
Chapter 3.3: 10-Year Projection - Georgia.... 45
The Georgian Economy To 2021 45
Foreign Investment Will Support Growth .45
Over our 10-year projection period, we project Georgian growth to remain relatively robust, averaging 4.9% over 2017-2021.
TABLE: LONG-TERM MACROECONOMIC FORECASTS..45
Chapter 3.4: Business Environment - Georgia.... 47

Environment Overview Outlook. 47
Institutions .... 47
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS..48
Infrastructure 49
TABLE: BMI LEGAL FRAMEWORK RATING..49
TABLE: LABOUR FORCE QUALITY.50
TABLE: EMERGING Euros OPE - ANNUAL FDI INFLOWS..51
TABLE: TRADE AND INVESTMENT RATINGS....52
Market Orientation .. 53
TABLE: TOP EXPORT DESTINATIONS53
Operational Risk 54
Chapter 4: BMI World Assumptions. 55
World Outlook.... 55
World Economy Continues To Muddle Through ...55
TABLE: GLOBAL ASSUMPTIONS....55
TABLE: DEVELOPED STATES REAL Gross Domestic Product GROWTH FORECAST.56
TABLE: REAL Gross Domestic Product GROWTH CONSENSUS FORECASTS...56
TABLE: EMERGING MARKETS REAL Gross Domestic Product GROWTH FORECAST57

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