Issue 3 2016. June-July



Tbilisi is looking to Tallinn's success for keys to economic reform.

Joseph Larsen

When one hears the term "special relationship" in foreign diplomacy, the Anglo-American partnership is usually what comes to mind. However, the partnership between Georgia and Estonia is another special relationship worth watching.

These two former Soviet republics share borders — and complicated relationships — with Russia. They also have deep cultural, geographic, and historical differences. Those differences have not stopped them from cooperating in a number of areas, however.

A Shared Vision

The latest point of convergence between the two countries is Georgia's implementation of corporate tax reform, which is scheduled for early 2017. The government will make retained and reinvested profits exempt from the current corporate tax rate of 15 percent. In addition, companies will file taxes on a monthly basis rather than annually as they do now.

These reforms are closely modeled on the corporate tax regime that was implemented in Estonia in 2003. A 2011 study by economists at the Bank of Estonia found that exempting reinvested and retained profits resulted in higher economic growth and labor productivity, and shifting to a monthly filing system reduced the amount of time that companies spend on tax compliance each year.

"In the Estonian case it has proved over the years that [corporate tax reform] was a very clear contribution to economic growth" said the Estonian Ambassador to Georgia, Priit Turk, in an interview with Ambassador Turk spoke highly of tax reform in his own country, and is optimistic that it can work for Georgia as well: "I don't see why [it would not be successful]. The vision of the government in Georgia is the same as it was in Estonia."

Tax reform is just one of the areas in which the two countries share ideas. Ambassador Turk also spoke at length about education, one area where successful reforms have helped spur economic growth. He identified three key aspects of Estonia's successful education reform: developing a curriculum that aligns with labor market needs, improving teachers' qualifications, and expanding and improving vocational training.

Focus on Education, Exchange

These lessons have not been lost on Georgia. A "low level of education is definitely one of the most important obstacles for economic growth in our country", said Giorgi Mzhavanadze and Salome Deisadze, research fellows at the International School of Economics at Tbilisi State University, in an e-mail interview with

"The most important bottleneck in business development in Georgia is a skills mismatch: the demand for highly qualified workers is high, but supply cannot meet the labor market needs," said Mzhavanadze and Deisadze. There is thus much room for growth in vocational education.

The Ministry of Education and Sciences of Georgia is deepening its cooperation with the Estonian government in this area. One example is a partnership project between Kobuleti Community College Akhali Talgha and Valga, an Estonian vocational education and training institution. Launched earlier this year, the project will allow Georgian logistics students to pursue advanced studies in Estonia and participate in internships with Estonia-based companies.

Bridging the Gaps for Future Growth

Education experts are optimistic that Georgia can learn valuable lessons through its cooperation with Estonia. But according to Simon Janashia, a Tbilisi-based education consultant, there are structural problems holding back Georgia's vocational education sector.

"Professional education is not very prestigious and not a very secure investment," said Janashia. Georgian students lack a bridge from vocational education to higher education. There is no clear path forward for someone who goes through a vocational program but later decides to pursue a university degree.

Georgia could also do more to utilize advanced technologies, including the internet and communications. Advancement in these areas has been critical for Estonia. According to Turk, Estonia's success is largely due to "a very clear focus on high-tech and IT. It has been focused for 15 years, and now we see some results ... Students and different segments of society got training in how to use the Internet."

Georgia has made gains in these areas. Nearly all of the country's secondary schools have internet access, and 300,000 Georgian schoolchildren have received laptop computers free of charge from the government.

However, according to Janashia, usage lags behind capabilities. There are no "regulations that would acknowledge informal education" and "no accreditation mechanism for distance programs," explains Janashia. Georgian schools will have to integrate web-based education in order to make the most of available technologies.

In the view of Ambassador Turk, it is important that both countries maintain a forward outlook during their ongoing economic transformations: "It's always important to look more to the future than discuss what has been achieved previously. I think that a very clear focus on the future and very clear goals [are most important]."