Star Report: Georgia II Compact | September 2021

Country Context

Georgia has been a strategic partner of the United States since the country’s independence from the Soviet Union in 1991. Georgia’s growth since independence has been characterized by sharp disparities, with poverty persisting notably in rural areas. Situated in a region of the world fraught with conflict since the breakup of the Soviet Union, Georgia has made remarkable progress, having enacted numerous reforms while benefitting from almost $545 million in MCC investments over 15 years of partnership.

Shortly after the Rose Revolution in May of 2004, MCC’s Board of Director’s selected Georgia for a $395 million compact focused on infrastructure and business development. Upon compact completion in April of 2011, the compact had delivered targeted interventions for the poor through increasing access to jobs, basic services, and capital for business development.

The first Georgia compact rehabilitated 220 kilometers of highway, connecting the capital of Tbilisi to key agriculture corridors in the southwest, Armenia, and Turkey. Improved highways drove international trade and investment, and increased transportation access, and speed to both the capital city of Tbilisi and local markets decreased. The improved roads significantly increased industrial investment in nearby communities. 1   The creation of a business development program, which was designed to accelerate the shift from subsistence to commercial agriculture, contributed to an increase in firms’ revenue by over $3.8 million and supported the creation of over 3,000 jobs. 2 Critical repairs were made to the country’s main gas pipeline, to provide better access to reliable energy. The compact also worked to increase the reliability of water supply in five cities and reduce costs for more than 67,000 residents and businesses.

Georgia achieved wide-scale economic growth during the span of the first compact. Georgia moved from 100th to 11th place in the World Bank’s “Doing Business Indicators” between 2006 and 2010. The country implemented sweeping reforms that strengthened public finances, deregulated business, improved the business environment (e.g., the process of registering a new business was dramatically simplified), and enhanced social protection. 3 As a result of these reforms, Georgia enjoyed rapid economic growth, averaging 9 percent annual GDP growth from 2004-2007.

In 2008, Georgia’s foreign-investment-driven economy faltered with the double shock of the global economic downturn and conflict with Russia. Although economic growth somewhat rebounded in the subsequent years, poverty rates remained high, increasing from 22.7 percent to 24.7 percent after the 2008 conflict with Russia. The poverty gap between urban and rural areas also widened during this period. Though less than half of Georgia’s population lived in rural areas, 64 percent of Georgia’s poor were rural residents. While the country had made progress, it still lacked the inclusive economic growth necessary for long-term poverty reduction, which is, in part, why it was selected for a second compact.

As part of the compact development process, the GoG conducted an analysis of constraints to economic growth in the spring of 2011 and identified the lack of an adequately trained workforce to meet labor demand as one of two binding constraints. 4 This finding aligned with the 2011 World Economic Forum’s Global Competitiveness Report, which identified an “inadequately educated workforce” as the second most problematic factor for doing business in Georgia in 2011-2012.  

MCC and the GoG agreed to target Georgia’s education system to improve the skills of the Georgian workforce. Education was lacking in STEM fields in particular. In 2007, Georgia ranked 33 out of 48 countries in an international math assessment of grade 8 students, and 37 out of 48 in science. 5 In 2009, Georgia’s scores in an international student assessment revealed that two-thirds of 15-year-old students performed below the baseline proficiency in reading, math, and science. 6 The low quality of education continued at higher rungs of education. There were not enough quality STEM courses in Georgian universities and technical colleges. This deficiency was reflected in Georgia’s ranking 120 out of 142 countries in the availability of scientists and engineers. 7

The constraints analysis also found that gender disparities were prominent in STEM careers in Georgia. Data showed girls outperformed boys in school, yet schools and communities steered girls into less profitable sectors of the economy, resulting in lower earnings on average for women than for men. In December 2011, the GoG submitted a proposal to MCC outlining objectives to improve education quality through investments in general education, TVET, and STEM higher education. MCC approved the proposed project areas, and the GoG subsequently held meetings with over 50 different international higher education institutions in Georgia and the U.S. in order to obtain market feedback to help define the parameters of an MCC compact-funded partnership for improved higher education in Georgia. Additionally, to understand the gap between labor supply and demand, MCC officials met with more than 70 private sector representatives throughout Georgia.

MCC’s Board of Directors approved the compact with Georgia in June of 2013, and it was signed in July of 2013. The objective of the compact was to strengthen the quality of general education (particularly STEM education), TVET, and higher education through these interrelated projects:

  1. Improving General Education Quality Project;
  2. Industry-Led Skills and Workforce Development Project; and
  3. STEM Higher Education Project.

The compact took a lifecycle approach to education, investing in general education, technical training, and tertiary education. The aim was that Georgians would enter the workforce better trained, earn higher wages, and be better equipped to meet industry demands. The project originally intended to benefit 1.7 million Georgians, nearly half the population in the long-term, and to reduce poverty and spur economic stability and growth.

To address the gender disparities identified in the constraints to growth analysis, the compact aimed to increase women’s participation in the workforce and in STEM fields, in particular. MCC partnered with the GoG, the private sector, the U.S. Embassy, and other donors to amplify the impact of the compact, including on Georgian women and girls. Gender and social inclusion best practices were used to better assist Georgia’s most vulnerable citizens, namely the poor and ethnic minority students attending neglected schools outside of Tbilisi, and high school graduates entering TVET as a path to prosperity. These targeted investments aimed to ensure that the compact’s economic growth benefits also reduced poverty.

The GoG remained a strong and supportive partner of MCC throughout implementation and beyond. Georgia contributed $32.96 million to the compact and in 2019, after compact closure, the GoG announced that it would continue the work of the MCC compact through investing in education, partnering with donors such as the World Bank to build on MCC’s efforts to enhance education quality. The GoG contributed an additional $10.5 million to continue supporting the STEM Higher Education Project after compact closure. At the end of the compact, the GoG established and funded the Millennium Foundation, an entity in charge of sustaining the program. The GoG’s commitment to continue and replicate the compact’s student-centered investments, from the start of a child’s schooling to his or her placement in the job market, bodes well for sustainability of the compact’s results.

At a Glance

  • Original Amount at Compact Signing: $140 million
  • Amount spent: $138.6 million
  • Total country contribution: $32.96 million (end of compact)
  • Signed: April 7, 2011
  • Entry Into Force: September 20, 2013
  • Closed: September 20, 2018

Economic Analysis of the Compact

All numbers are at compact closure

Compact Project Estimated Economic Rate of Return over 20 years 8 Estimated Beneficiaries over 20 years 9 Estimated Net Benefits over 20 year
Georgia II Compact Not available 1,165,821 $106.3 million (2013 USD)
Improving General Education Quality Project 15.5% 1,067,817 $78.9 million
Industry-Led Skills and Workforce Development Project 19.1% 81,769 $36.4 million
STEM Higher Education Project 9.0% 16,235 -$9 million