ANALYSIS OF THE EUROPEAN COMMISSION PROPOSAL FOR NATIONAL INDICATIVE PROGRAMME FOR GEORGIA

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2 DIRECTORATE-GENERAL FOR EXTERNAL POLICIES OF THE UNION DIRECTORATE B POLICY DEPARTMENT BRIEFING NOTE ANALYSIS OF THE EUROPEAN COMMISSION PROPOSAL FOR NATIONAL INDICATIVE PROGRAMME FOR GEORGIA Abstract The briefing examines the reasons underlying the review of the National Indicative Programme (NIP) for Georgia and evaluates the substance of changes brought to assistance priorities and funding against Georgia s current situation and against the strategic objectives of EU-Georgia relations as identified in the European Neighbourhood Policy Action Plan (ENP AP) and in the Country Strategy Paper. The analysis of Country Strategy Paper (CSP) as being still valid and the subsequent preservation of major assistance priorities are considered to be justified in light of recent developments. The challenges faced by Georgia have indeed become more acute but their nature has not changed. Recent political developments highlight the need to consolidate the democratisation process as a prerequisite for a successful implementation of the whole reform process. Against that background, a higher priority status should be granted to the first NIP priority area (Democratic development, rule of law and good governance) and EC assistance should more clearly focus on those actors which are crucial in the consolidation of the democratisation process (e.g. the Parliament and civil society). The emphasis put on regulatory reform is consistent with the intensification of EU-Georgia relations through the Eastern Partnership; however, in the perspective of the forthcoming negotiations for a Deep Free Trade Area, the EC should support capacity-building within the Georgian government to prioritise and monitor the implementation of reforms. Monitoring is also important in light of the broad use of sector budget support so that EC assistance is not negatively affected by an unstable policy environment. To that purpose, benchmarks and indicators should be further specified in the NIP. EXPO/B/AFET/FWC/ /Lot/18 JANUARY 2010 PE EN

3 DG EXPO Policy Department This study was requested by the European Parliament's Committee on Foreign Affairs. AUTHOR: Dr. Laure DELCOUR, Senior Research Fellow, IRIS, Direction of European Affairs, Ecole Nationale d Administration Dr. Thornike GORDADZE (Co-author), Director of the South Caucasus Department, French Institute of Anatolian Studies Standard briefing carried out within the framework agreement between IRIS and the European Parliament. Ref.: EP/EXPO/B/AFET/FWC/ /Lot1/18 ADMINISTRATOR RESPONSIBLE: SOURANDER Dag Directorate-General for External Policies of the Union Policy Department WIB 06M083 rue Wiertz 60 B-1047 Brussels LINGUISTIC VERSIONS Original: EN ABOUT THE EDITOR Manuscript completed on 22 January European Parliament, 2010 Printed in Belgium The study is available on the Internet at If you are unable to download the information you require, please request a paper copy by xp-poldep@europarl.europa.eu DISCLAIMER Any opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the official position of the European Parliament. Reproduction and translation, except for commercial purposes, are authorised, provided the source is acknowledged and provided the publisher is given prior notice and supplied with a copy of the publication. ii

4 Analysis of the European Commission proposal for National Indicative Programme for Georgia EXECUTIVE SUMMARY Scope of the briefing This briefing analyses the proposed changes to the National Indicative Programme (NIP) for Georgia in light of the country's specific needs. It explains the underlying reasons for the review of the NIP taking into account current situation in the country and the major EU and EU-Georgia policy documents, i.e. the European Neighbourhood Policy Action Plan (ENP AP), the Country Strategy Paper (CSP), the NIP and European Parliament (EP) Resolutions of 3 September 2008 and 19 February Following an overall presentation of the NIP , the briefing is divided into a political, an economic, a social and an internal conflicts section following the structure of the NIP. Each section provides an analysis of the current situation, the priority areas identified by the NIP and an assessment of the changes brought to assistance priorities and of their relevance. Main findings and recommendations Assistance priorities The fact that the CSP has not been revised is considered to be justified. The challenges faced by Georgia (flaws or setbacks in the democratisation process, poverty, conflicts) have become more acute but their nature has not changed. The four priority areas selected under the NIP stem from this analysis of the CSP as being valid. They have not been significantly been modified as compared to the previous NIP. These priorities are assessed as relevant to the country s needs and to its relations with the EU. Recent political developments highlight the need to consolidate the democratisation process. An effectively functioning democracy will indeed serve as the foundation for the whole reform process. Against that background, a stronger emphasis should be put on the first NIP priority area (Democratic development, rule of law and good governance). Within the first sub-priority area (democratic development), EC assistance should more clearly focus on those actors which are crucial in the consolidation of the democratisation process. In particular, support to the Parliament and to civil society s participation in the policy process need to be further emphasized. Under the second priority axis (Trade and investment, regulatory alignment and reform), a stronger emphasis is put on regulatory reform when compared to NIP This is consistent with the intensification of EU-Georgia relations through the Eastern Partnership. However, Georgia has reportedly made uneven progress across sectors over the past few years. In the perspective of intensified relations and of the forthcoming negotiations for a Deep Free Trade Area (DFTA), the EC should support capacity-building within the Georgian government to prioritise and to monitor the implementation of regulatory reform. Under the third priority (Regional development, sustainable economic and social development, poverty reduction), civil society is assigned a consultative role in the programming process, which is positive; however, it should also be given a major role in the implementation of assistance activities, which is not clearly specified. Civil society organisations are indeed key actors at the grassroot level who can contribute effectively to reducing social and regional disparities and to fostering minorities' integration. The fourth priority axis keeps up with the EC s previous engagement in Georgia s conflict resolution. It rightly emphasizes the need to support Internally Displaced Persons (IDPs) in the aftermath of the iii

5 DG EXPO Policy Department 2008 conflict. However, references to other EU initiatives in this area should be detailed and the place of ENPI support should clearly be defined in this broader EU framework. Aid modalities and implementation The EC has proposed a wide array of aid modalities in the forthcoming NIP. This is considered to be justified in light of past experience which has highlighted the complementarity of various EU tools in Georgia, for instance in the justice sector. Sector budget support is broadly used and it will enhance Georgia s ownership of the reform process. However, implementation needs to be carefully monitored so that EC assistance is not negatively affected by an unstable policy environment. Overall, benchmarks and indicators should be further specified to monitor the effectiveness of EC assistance. iv

6 Analysis of the European Commission proposal for National Indicative Programme for Georgia CONTENTS EXECUTIVE SUMMARY SCOPE OF THE BRIEFING MAIN FINDINGS AND RECOMMENDATIONS III III III 1 INTRODUCTION 1 2 OVERALL CHARACTERISTICS OF THE NIP UNDERLYING REASONS FOR THE REVIEW OF NIP FUNDING AND PRIORITIES 1 3 DEMOCRATIC DEVELOPMENT, THE RULE OF LAW AND GOVERNANCE POLITICAL SITUATION NATIONAL INDICATIVE PROGRAMME ASSESSMENT 2 4 ECONOMIC DEVELOPMENT AND ENP AP IMPLEMENTATION ECONOMIC SITUATION NATIONAL INDICATIVE PROGRAMME ASSESSMENT 3 5 POVERTY REDUCTION AND SOCIAL REFORMS SOCIAL AND REGIONAL SITUATION NATIONAL INDICATIVE PROGRAMME ASSESSMENT 4 6 PEACEFUL SETTLEMENT OF GEORGIA S INTERNAL CONFLICTS CONFLICTS SITUATION NATIONAL INDICATIVE PROGRAMME ASSESSMENT 5 BIBLIOGRAPHY 7 ANNEX 8 v

7 DG EXPO Policy Department 1 INTRODUCTION The initial request for this briefing paper (ep/expo/b/afet/fwc/ /lot1/18, annex ii) specifies that the briefing paper should: examine the underlying reasons for the review of the European Commission (EC) s Country Strategy Papers (CSPs) and National Indicative Programmes (NIPs), evaluate the substance and impact of changes, and indicate what other changes the author considers motivated, if any. In responding to this task, we analyze the IP and project its allocation of funding and composition of priorities against Georgia s current situation and specific needs as identified by the European Neighbourhood Policy Action Plan (ENP AP), the CSP and the NIP. 2 OVERALL CHARACTERISTICS OF THE NIP 2.1 Underlying reasons for the review of NIP Since 2007, Georgia has gone through major political, economic and international developments which have negatively affected the reform process. These include political turmoil since 2007, a conflict with Russia in August 2008 and the effects of the world crisis on the Georgian economy. At the same time, relations with the EU have intensified in the framework of the European Neighbourhood Policy (ENP), more specifically through the Eastern Partnership. These changes prompted a revision of the NIP.However, as shown hereafter, the EC brought only limited changes to assistance priorities in Georgia. The EC indeed considers that recent developments have altered the dimensions but not the substance of the priorities identified in the CSP (European Commission 2009). The result of the review process is therefore an update rather than a shift in assistance priorities. 2.2 Funding and priorities The NIP for Georgia under the European Neighbourhood and Partnership Instrument (ENPI) amounts to million, an increase by one third over the NIP indicative commitments. Within the indicative budget for , million are allocated to priority axis 1 (Democratic development, rule of law, good governance), million to priority axis 2 (Trade and investment, regulatory alignment and reform), million to priority axis 3 (Regional development, sustainable economic and social development, poverty reduction) and 9-18 million to priority axis 4 (Support for peaceful settlement of conflicts). These are financial commitments; as indicated in the EP resolution of 19 February 2009, actual figures should be provided by the EC in order to update the analysis. As shown in the table included in annex, the four priority axes have not changed significantly when compared to the previous NIP. The EC analysis of the CSP as still being valid and the subsequent selection of assistance priorities are considered to be justified both in light of the country's current needs and of likely short-term developments. However, under each sector additional justification should be provided on EC's assistance added value and complementarity with other donors. The donors' matrix included in annex 4 could provide a basis for such additional justifications. 1

8 Analysis of the European Commission proposal for National Indicative Programme for Georgia 3 DEMOCRATIC DEVELOPMENT, THE RULE OF LAW AND GOVERNANCE 3.1 Political Situation Whereas significant progress has been achieved in democratisation and respect of human rights since the Rose revolution, recent developments highlight the fragility of these achievements. Over the past years the country has moved in the direction of super-presidentialism. Political life is highly personalised, and political parties have developed around leaders rather than clear political platforms. Since 2007, Georgia has gone through a period of political turmoil characterised by growing tensions between the authorities and the opposition which culminated in major crises. During the latest of these in Spring 2009, when failing to obtain the Orthodox Patriarch s blessing to march towards the presidential palace, opposition leaders moved back and as a consequence lost their credibility. 3.2 National Indicative Programme In light of the analysis provided by the ENP AP (especially priority area 1) and the CSP, the NIP envisages the following key sub-priorities: Media freedom, political pluralism, human rights, civil society development; Justice sector reform; Public finance management and public administration reform. 3.3 Assessment Increase in funding for the first priority area (i.e for as compared to 31 million for ) is considered to be well justified in light of both challenges faced by Georgia and EU- Georgia relations priorities. Further efforts in the democratisation process are indeed the yardstick against which the government of Georgia s commitment to go ahead with reforms will be assessed. Such importance should however be reflected in the respective budget allocation among major assistance priorities: the first priority axis allocation is expected to range from 25% to 35% of the budget, as compared to 35-45% for the third priority axis. Democratic development: Political developments since 2007 highlight the need for strengthening the democratic reform process which was launched in 2004, especially with a view to establishing a functioning system of check and balances amongst power branches. However, under this sub-area the NIP adopts a wide range of objectives. These are not prioritized and as a result, there is no clear focus on the country's most urgent needs, identified as improving major democratic institutions capacities and fostering the participation of civil society in the policy process. Moreover, achievement indicators need to be further specified in order to enable the EC to monitor developments in this area. Rule of Law: Support to the justice sector reform is coherent with the ENP AP and the CSP. It will build upon the vision already developed by the EC and the previous EC/EU actions in this area. Combined with other tools, budget support is expected to enhance the Government of Georgia s ownership of the reform process in the justice sector. Close monitoring of this process is however needed as far as the instability of the policy environment is likely to affect the effectiveness of EC assistance. For 2

9 DG EXPO Policy Department instance, the emphasis put on juvenile justice in the NIP stems from policy shifts which resulted in moving Georgia away from international standards. Good governance was identified in the CSP as a priority to develop a modern state with enhanced capacities to implement the reform process. Decentralisation of power has emerged as a new objective under this sub-priority. Taking into account uneven levels of development amongst Georgian regions, the introduction of a new system of municipal government in 2007 and the National Decentralization Strategy, this aim is fully justified. However, the need to strengthen local capacities is not sufficiently addressed. 4 ECONOMIC DEVELOPMENT AND ENP AP IMPLEMENTATION 4.1 Economic Situation After the Rose Revolution, the Georgian government engaged into a wide-ranging reform process aiming at fighting corruption and creating a favourable business environment. As a result, the country s economic performance has been impressive over the past few years (13.1% growth in 2007). With regards to business climate, Georgia is classified at the 11th rank by the International Finance Corporation (Doing Business 2009). However, the economy has been affected by Russian embargo and more recently by the world crisis and the August 2008 conflict. Some sectors have been hit with full force by the economic crisis, such as the banking sector. As a consequence, Georgian GDP has declined by almost 4% in International assistance received after the 2008 conflict enabled the authorities to focus on the consequences of the economic crisis, especially in the banking sector. 4.2 National Indicative Programme In line with priority area 4.5 of the ENP AP, the NIP mentions the following sub-priorities: Export and investment promotion, in particular through market and regulatory reform; Sector-specific regulatory alignment and reforms in line with PCA/ENP AP priorities. 4.3 Assessment In light of the forthcoming steps in EU-Georgia relations, the volume of funding for the second priority axis is modest ( million, i.e % of the total budget). Focusing on a limited number of sub-priorities is therefore justified, even more so as these are at the core of EU-Georgia relations. Promotion of trade and investment and support to export diversification has been a continuous EC priority since They are increasingly important in the aftermath of the 2008 conflict with Russia, which made the diversification of Georgian trade flows more urgent. As compared to the previous NIP, a stronger emphasis is put on sector-specific regulatory reform (e.g. in transport, energy and environment). This evolution matches the ENP AP s requirements as well as the evolution of EU-Georgia relations (e.g. agreement under negotiation in the aviation sector, planned integration of Georgia in the Energy Community). Overall, regulatory reform has gained a new importance with the perspective of a FTA. This priority is therefore fully consistent with the intensification of EU-Georgia relations through the Eastern Partnership. Georgia has reportedly made uneven progress across sectors over the past few years. 3

10 Analysis of the European Commission proposal for National Indicative Programme for Georgia Such progress is however difficult to assess, as far as there is currently no governmental body in charge of prioritising and monitoring actions under the PCA. This should be a pre-requisite to ensure effectiveness of EC assistance, even more so if the EC intends to become a lead donor in this area. 5 POVERTY REDUCTION AND SOCIAL REFORMS 5.1 Social and regional situation Georgia s economic policy is not social-oriented and poverty remains one of the country's main concerns, with approximately one quarter of Georgian population living below the poverty line. Yet, Georgian authorities have recently taken steps to combat poverty. Adopted in 2008, the programme Georgia without poverty aims at developing more efficient social safety nets. In February 2009, the authorities also launched the programme cheap health insurance for citizens without social protection. Regional development has also emerged as a priority as far as a large part of the population below the poverty line lives in rural areas. Reducing regional disparities is therefore essential to combat poverty. 5.2 National Indicative Programme The third priority axis is in line with the ENP AP (priority area 4.4 and sub-chapters and 4.7.1). It keeps up with the emphasis on poverty reduction and regional development, while also incorporating education which was previously included in the second priority axis. The NIP envisages the following key sub-priorities: Social reforms and social protection; Regional development and sustainable development, including environmental protection; Education, skills development and mobility. 5.3 Assessment The third priority axis has the largest funding allocation (between 63 and 81 million) among the four axes (between 35% and 45% of the total budget). Such importance is considered to be justified in light of recent socio-economic developments in Georgia. Increase in funding over the last NIP can also be explained through the transfer of education to the third priority axis. The first sub-priority, social reforms and social protection, corresponds both to the country's needs (i.e. persisting concerns over poverty) and to the authorities' priorities (i.e. programme «Georgia without poverty» and Millenium Development Goals). Along with social disparities, the NIP addresses regional disparities across the country, which is a core objective of the Georgian government in its efforts to reduce poverty. This subpriority is even more justified as it results from a wide-ranging consultation process involving CSOs. Being a critical actor in rural areas, civil society should also be closely associated to project implementation and monitoring in this sub-priority, even more so as the EC has foreseen sector budget support. 4

11 DG EXPO Policy Department 6 PEACEFUL SETTLEMENT OF GEORGIA S INTERNAL CONFLICTS 6.1 Conflicts Situation The consequences of the 2008 war were dramatical for Georgia IDPs were added to the persons displaced after the Abkhaz war in the beginning of 1990 s. Most of the military and some of the civil infrastructure of the country was severely damaged. Those Georgians who remain in Gali and Akhalgori districts are deprived of human rights such as the right of education in their native language. The EU s settlement efforts have had for the time being a very limited success. The Sarkozy- Medvedev 6 point agreement is not respected by Russia. Furthermore, access to Abkhazia and South Ossetia is denied to the EU Monitoring Mission s (EUMM) observers. 6.2 National Indicative Programme This priority axis is in line with priority area 6 and chapter 4.2. of the ENP AP. Its main objectives are to contribute to confidence building between communities and to address the needs of Internally Displaced Persons (IDPs) and returnees. 6.3 Assessment The fourth priority axis keeps up with the EC s previous engagement in Georgia s conflict resolution. Since 1997, the EC has been one of the biggest contributors to efforts for settlements of internal conflicts. Yet, in the report published in September 2009, the Tagliavini Commission criticised the EU and international organisations for abandoning to Russia the monopoly of the peace keeping process in Georgia since the 1990's. Upholding the peaceful settlement of Georgia's internal conflicts is particularly important now, both for the country's future and for developing the ENP. However, the conditions under which EC assistance will be implemented have drastically changed after the 2008 conflict. The emphasis on IDPs resettlement and living standards in the NIP addresses Georgian needs over the short-term, in line with the IDP strategy and related action plan established by Georgian authorities in cooperation with UNHCR. Contribution to confidence-building and to conflict settlement mechanisms (inter alia to the Geneva forum) are to be seen as long-term tools. They answer the concerns expressed by the EP in its resolution on Georgia of 3 September 2008 (points 20-23, European Parliament 2008). As far as the bulk of support in this area is channelled through the Economic Recovery and Stability Package (ERSP), which combines ENPI funds, crisis assistance, humanitarian aid and grants for macrofinancial assistance. the funding for the fourth priority axis under the NIP is extremely modest. The 9-18 million allocated to this area represent between 5 and 10% of the total budget, down from 16% ( 19 million) in the NIP. However, additional information on monitoring mechanisms, conditionality and fund disbursements under the ERSP should have been included as an annex to the NIP in order to justify and to supplement the analysis provided in the document. 5

12 Analysis of the European Commission proposal for National Indicative Programme for Georgia Dr. Laure Delcour, Senior Research Fellow, IRIS/ Direction of European Affairs, Ecole Nationale d Administration. Dr. Thornike Gordadze (Co-author), Director of the South Caucasus Department, French Institute of Anatolian Studies 6

13 DG EXPO Policy Department BIBLIOGRAPHY EUROPEAN COMMISSION, EU-Georgia Action Plan, available at: EUROPEAN COMMISSION, European Neighbourhood and Partnership Instrument, Georgia Country Strategy Paper , available at: EUROPEAN COMMISSION, European Neighbourhood and Partnership Instrument, Georgia National Indicative Programme , available at: EUROPEAN COMMISSION, European Neighbourhood and Partnership Instrument, Georgia National Indicative Programme EUROPEAN PARLIAMENT, Resolution of 3 September 2008 on the situation in Georgia, available at: EUROPEAN PARLIAMENT, resolution of 19 February 2009 on the review of the European Neighbourhood and Partnership Instrument (2008/2236(INI)), available at: 7

14 Analysis of the European Commission proposal for National Indicative Programme for Georgia Annex NIP NIP Priority Area 1: Support for democratic development, rule of law and governance Sub-priority 1.1: Democracy, human rights, civil society development Sub-priority 1.2: Rule of law and judicial reform Sub-priority 1.3: Good governance, public finance reform and administrative capacity building Priority Area 2: Support for economic development and ENP AP implementation Sub-priority 2.1: Promoting external trade and improving the investment climate Sub-priority 2.2: Supporting PCA/ENP AP implementation and regulatory reforms Sub-Priority 2.3: Education, including vocational education, science and people-to-people contacts/exchang Priority Area 3: Support for poverty reduction and social reforms Sub-priority 3.1: Strengthening social reforms in health and social protection Sub-priority 3.2: Rural and regional development Priority Area 4: Support for peaceful settlement of Georgia's internal conflicts Priority area 1: Democratic development, rule of law, good governance Sub-priority 1.1: Media freedom, political pluralism, human rights, civil society development Sub-priority 1.2: Justice sector reform Sub-priority 1.3: Public finance management and public administration reform Priority area 2: Trade and investment, regulatory alignment and reform Sub-priority 2.1: Export and investment promotion, in particular through market and regulatory reform; preparations for a future deep and comprehensive FTA with the EU Sub-priority 2.2: Sector-specific regulatory alignment and reforms in line with PCA/ENP AP priorities Priority area 3: Regional development, sustainable economic and social development, poverty reduction Sub-priority 3.1: Social reforms and social protection Sub-priority 3.2: Regional development and sustainable development, including environmental protection Sub-priority 3.3: Education, skills development and mobility Priority area 4: Support for peaceful settlement of conflicts 8

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