PROBLEMS OF ASSESSING THE SOCIO-ECONOMIC EFFECTIVENESS OF MUNICIPAL INVESTMENT PROJECTS IN GEORGIA

Abstract

Nowadays in the world, public structures are just as often and fundamentally pre-evaluating investment projects using a proven methodology as private investors. This allows them to predict the results of the investment project implementation and to make final conclusions about the effectiveness of the investment project compared to the actual indicators. Moreover, there is a clear tendency to reduce the volume of projects for which pre-selection-evaluation procedures are applied, before making a decision on their implementation. On the example of Georgia, despite the fact that a normative base for pre-selection and evaluation of investment projects has been created with the involvement of donor organizations, we have not been able to find even one case of selection and evaluation of investment projects at the municipal level (except the capital). Therefore, the aim of our research is to identify the circumstances that prevent municipalities from pre-evaluating investment projects, analyze the challenges municipal authorities faces in this area, make appropriate conclusions and develop recommendations to solve the existing challenges. There was approved "Investment Project Management Guide" by the Government Resolution №191 on the management of public investment projects (22.04.2016); The management methodology of investment project was approved y the order of the Minister of Finance of Georgia N165 (22.07.2016) and according to them, public investment projects with a value of 5 million GEL or more were subject to selection and evaluation. According to the international practice, the above-mentioned guide and methodology suggests the use of CBA - Cost-Benefit Analysis and CEA - Cost-Effectiveness Analysis methods for the evaluation of alternative projects. Cost-benefit analysis in the evaluation of a public investment project is characterized by certain specific features, which is reflected in the fact that the evaluation of costs and benefits of the investment project goes beyond the narrow spectrum of financial indicators of the implementing agency and is done in a broader economic context. It is called as economic cost-benefit, which refers to the estimation of costs and benefits in the context of society as a whole, including possibly costs and benefits for which market prices are sometimes not directly observable. Therefore, in order to evaluate investment projects with this approach, it is necessary to have a number of statistical data and information in the target area of the project, depending on the specifics of the project, which in most cases are impossible to obtain at the municipal level. Therefore, they are not able to use the cost-benefit approach when evaluating alternative projects. However, as our observations have shown, this is not the only reason and there are other interceptive conditions. In that case when it is not possible to calculate the benefits of project implementation with sufficient accuracy, it is advisable to use cost-effectiveness analysis to evaluate projects. That should be relatively simple for the municipalities, however, in the 10 municipalities we did surveys, there is not a single case of its usage and investment project evaluation in general has not been identified. In the process of the survey, from the respondents which represent the economic services of the municipalities, it was found that the majority (about 75%) are not well acquainted with the requirements of the above guide and methodology, about 80% do not have an economic education that will allow them to practice independently evaluate investment projects in the process of activities. After getting acquainted with the essence of the methods of cost-benefit analysis and cost-effectiveness analysis, the problem of finding relevant statistical indicators was named as the main obstacle to the process of evaluation of investment projects by these methods. They also emphasize that the lack of statistical information at the municipal level also delays the effective implementation of the municipality's activities in many other areas. As a result of the conducted research, we can conclude that in order to effectively conduct the pre-selection-evaluation process of investment projects at the municipal level following issues has to be considered: • Increase the qualifications of relevant staff of municipal bodies and provide them with relevant knowledge and skills to be able to evaluate investment projects funded by the municipality using a proven methodology based on objective analysis. Moreover, in order to achieve this, except providing staff training, we also consider it advisable to appoint experienced external consultants (Coach) to the municipalities at the first stage, who will offer their staff on-the-job training; • As a result of the cooperation between the Municipalities and the National Statistics Office, the list of key statistical information that is critical to the effective implementation of municipal government should be defined and the National Statistics Office should be responsible for collecting, processing and delivering it to municipalities; • Municipalities should evaluate investment projects in the first stage using the cost-effectiveness analysis method, and after purchasing the relevant competencies and providing the necessary statistical information to the relevant staff, gradually introduce other methods, including the cost-benefit analysis method; • After implementing the given recommendations, a amendment should be made in the relevant government decree and the cost of the investment projects that will be subject to selection-evaluation by the above-mentioned methodology should be reduced to 1 million GEL. There is no doubt that the implementation of these mentioned recommendations will give a number of positive results to the municipalities, among which we should first of all mention the increase in the efficiency and effectiveness of public finance spending.