Annotation.The digital economy became actual after spreading the covid-19 virus in the world, and in Georgia, as well. In this paper, there is explained the historical background of the development of the digital economy. Then there is discussed the experiences of several countries in this field. And at the same moment here is explained the attempts to develop Georgian digital economy, there are detailly analysed digital consumption and supplement sides. There are figured out some defects and, in the end,there are given several recommendations to solve these ones.

Keywords: Digital Economy, Georgia, Internet, Trade, Online Service. 

Introduction

The digital economy is a part of the economy; it is created by using digital technology with the digital models of digital goods and services. The spread of the Covid-19 virus has spurred new opportunities for economic development. Social distance protection, stay-at-home policies, activation of delivery services, and other activities have led to an increase in the frequency of using the digital economy. There is both digital demand and supply as well. The spread of this virus has, of course, impacted these two conditions, too.

Research, development, and technology increase the productivity of the digital economy, as well as the development of digital skills in society. Some countries, such as Brazil, have adopted a national policy plan for the Internet of Things (IoT) and test platforms for healthcare, industry, and smart cities, while some states plan to develop a national digital strategy, while others lag far behind.

The digital economy more or less is a new direction for the Georgian economy and after the spread of the virus, the economic situation began the deterioration. On one hand, the country was closed by the decision of the state: trade, services, industry, tourism, etc. were suspended or slowed down. On the other hand, the government offered tax benefits and subsidized utility bills (electricity, water, cleaning, natural gas) to the population in 2020-2021. During the pandemic, special attention was also paid to online shopping and services, and the implementation of new ideas and opportunities.

This paper aims to examine the challenges related to the development of the digital economy in Georgia. There are investigated the households provided with the Internet, the rate of purchases of goods and services through the Internet, and the share of enterprises that had access to the Internet by January 1, 2021. There are also studied the capabilities of the website or webpage of the registered business entities (enterprises) by January 1, 2021, etc. There are used comparative, quantitative, and qualitative analysis, and made conclusions/recommendations based on the conducted research. 

Literature Review

Digital Economy Reflects the Transition from the Third Industrial Revolution to the Fourth Industrial Revolution (Pratt, M. K., 2017). According to (Bukht, R. and Heeks, R., 2017), in 1996 the definition of the digital economy is connected to Tapscott: it is the part of the economy that is created by using digital technology with business models of digital goods and services. Why is it used nowadays? It has several preferences: people can fast trade online with goods and services, save money online, and start their businesses online, too (Erkomaishvili, G., 2019). Products that are purchased via e-commerce are also called “digitally ordered”. The output of e-commerce is calculated as follows:  the wholesale trade minus online ordered goods/services; the margin is equal to the total revenue earned from online sales less the cost of goods sold (Bureau of Economic Analysis, 2021).

Covid-19 has had an impact on supply and demand in the digital economy; for example, according to data, working from home increased the consumption of the Internet and its infrastructure, online business, video, and mobile games, e-books, and so on in low- and middle-income countries. As for the demand reduction, it affected the tourism sector, sports, and other life activities. In terms of supply, Covid-19 grew the network capabilities to match Internet demand, online services, and service offerings by workers, etc., while in terms of supply reductions, this was related to employee illness, travel, and courier delays (also, delivery of goods by mail), which affected e-commerce, secure data packaging, etc. (Banga, K. & te Velde, D. W., 2020).      

After the outbreak of the Covid-19 virus from China, most countries have tightly closed their borders and announced lockdowns, including China; This case has given impetus to new opportunities in the economy. As the protection of social distance, the policy of staying at home, the activation of delivery services, and other activities have made the digital economy relevant. It has helped countries maintain economic prosperity despite the deaths of Covid-19; however, the popularity of the digital economy began in 2003 when T-Mall was created, and in 2004 Alipay became available online; Internet commerce and services have helped save economies of scale, and this, in turn, has increased competition between companies (Huang, Y., Qiu, H. and Wang, J., 2021) (Joi, P., 2020).

Some countries have policies that encourage the development of technologies such as robotics and artificial intelligence to increase utility. Brazil’s strategy aims to implement a national plan for the Internet of Things (IoT) and test platforms for healthcare, industry, and smart cities; Columbia's fourth industrial revolution center, operated by Ruta N Corporation in Medellin, and Uruguay Digital Production Laboratory. The introduction of digital technologies has an impact on productivity growth, according to the Organization for Economic Co-operation and Development (OECD) the analysis, investment in research, development, and technology accelerates the benefits of digital technologies; Enhancing digital skills can strengthen the connection between digital technology mastery and productivity gains; Organizational and managerial capabilities can increase productivity; Quality infrastructure is a key condition for the guaranteed efficient use of digital technologies, but it does not directly affect productivity (OECD et al., 2020).

According to statistics, there are top ten countries that are advanced in the field of the digital economy; The first place was taken by the United States with $ 13.6 trillion, which in 2021 accounted for 8% of its GDP. The US is called the most digitally competitive country in the world. As the digital economy is related to global economic activity, commercial transactions, and professional relationships, they are promoted by information and communication technologies (Information and Communication Technologies (ICT)). China came in second place with $ 5.4 trillion - 38.6% of its GDP. China is followed by Germany with $ 2.54 trillion - 63.5% of GDP, Japan – with $ 2.48 trillion - 49.9% of GDP, and the United Kingdom with $ 1.79 trillion - 63.25% of its GDP, its economy is mainly dependent on highly developed social and market in the economy. The other five countries are France with $ 1.19 trillion, South Korea with $ 847.8 billion, India with $ 514.9 billion, Canada with $ 436.5 billion, and Italy with $ 377.5 billion  (RankingRoyals, 2021) (World Population Review, 2022).

The Digital Economy and Society Index (DESI) monitors progress in EU member states in terms of digital competitiveness in human capital, broadband, business integration of digital technologies, and digital public services. Every EU member state has a process of digitalization, but some countries are working hard to achieve the goals of the 2030 European Digital Decade. Four main areas are identified: skills, infrastructure, digital transformation of business, and public services. 56% of individuals in the EU had basic digital skills by 2020. In terms of infrastructure, this refers to the growth of the Very High-Capacity Network (VHCN), rural VHCN coverage was only 28%, up from 22% last year. Integration of the use of digital transformation of cloud technologies has increased from 18% to 26% in 2018 and 2020 in the EU; However, 90% of small and medium-sized businesses have a key level of digital intensity by 2030 compared to 2020 (60%). 75% of enterprises will use digital technologies by 2030. Companies will use 75% of Big Data by 2030, but by 2020 few firms used them. As for digital public services, most EU member states are trying to digitize their services, for which the EU Commission has set up a 2021 e-Government Benchmark. (European Commission, 2021).

34 countries believe that their great focus should be shifted to a national digital strategy; According to the Organization for Economic Co-operation and Development (OECD), it defines the following conditions for the digital economy: access, use, innovation, trust, employment, society, and the market (OECD, 2020).

In the world there 7.93 billion population and the share of urbanization is 57%, there are 5 billion internet users which are 63% of the population, among them, there are social media users 4.5 billion which is 57.8% of the population as of April 2022; 5.32 billion are mobile phone users which is 67% of the population (Datareportal.com, 2022) (Johnson, J., 2022). Internet activities by individuals are given in table 1 (UNCTAD, 2021). 

Table 1. Internet activities undertaken by individuals,

by the level of development and region, 2021.

Discussion: Georgia and the digital economy

After the spread of the Covid-19 virus, the economic situation began to deteriorate. On the one hand, by the decision of the state, the country was closed, trade was suspended or slowed down, and trade, services, industry, tourism, etc. were closed. The spread of the pandemic contributed to the growth of mass unemployment (2019 - 17.6%, 2020 - 18.5%, 2021 - 20.6%), and the volume of GDP in 2019-2020 was the same (49.3 billion GEL), while in 2017- In 2018-2019, it was 40.8 - 44.6 - 49.3 billion GEL, so, among them, there was an increase of 9.3% and 10.5%; in January-February-March, 2020, the inflation rate was 0.7% -0.3% -0.7%, which is almost 30-40% in each month compared to previous and subsequent years - It was less (National Statistical Office of Georgia, 2022). But on the other hand, the government offered tax breaks to the population in 2020-2021, and subsidized utility bills (electricity, water, cleaning, natural gas), this cut also affected companies and loans to the population (Government of Georgia, 2021) (Parliament of Georgia, 2010) (Government of Georgia, 2022).

During the pandemic, special attention was paid to online shopping and services, the implementation of new ideas, and new opportunities.

According to the Ministry of Economy and Sustainable Development of Georgia, the Law of Georgia on Innovation, the National Strategy for Development of Broadband Networks for 2020-2025 and the Action Plan for its implementation, the Law of Georgia on Information Technology Zones, the World Postal Union (UPU) ratified by the Parliament of Georgia, the International Telecommunication Union (ITU) Acts, the Government of Georgia Decree on Digital Signatures, etc. have been adopted (Ministry of Economy and Sustainable Development of Georgia, 2022).

The government ordinance №60, January 10, 2020, defines the Approval of the National Strategy for Development of Broadband Networks of Georgia for 2020-2025 and the Action Plan for its implementation. According to the ordinance, its main goal is to form Georgia as a digital hub. One of its main tasks is also to develop a digital economy and form a digital economy as a driving force of inclusive growth for cities and villages to eliminate the disbalances. Its main goal also is to provide competition, investment, and develop digital skills. Georgia is a crossroad of internet networks: it is getting the internet from Turkey, Russia, and Bulgaria, and it transmits the internet to Armenia and Azerbaijan (The Government of Georgia, 2020)

As the main mechanisms of the economy are demand and supply, the number of Internet users and producers and their involvement in the Internet space are important. 

General analysis of the digital economy of Georgia

Demand analysis

86.1% of households in Georgia were provided with the Internet in July 2021, and 70.1% in June 2016, during these years the curve is characterized only by an increasing trend (tab.: 2) (National Statistical Office of Georgia, 2022). 

Table 2.  Households were provided with internet in Georgia in 2016-2021.

The majority of the population mostly used wireless internet outside of housing and work by 92.8% by July 2019 and 97.6% by 2021. The number of people provided with computers has changed slightly in July 2019 - 62%, and in July 2021 it reached 63.8%, as well as the level of Internet consumption through it (National Statistical Office of Georgia, 2022).

The rate of Internet use is high among the population (2021 - 86.1% of households), from 80% to 93% of the population owned and used a mobile phone in July 2019 and 2021 and a computer - 62-63.8%, but the rate of the purchase of goods and services through the Internet was small - 18.6% in June 2016 and 21.2% in July 2021 (tab.: 3). It is also noteworthy that by July 2021, the population aged 30-59 aged bought 5-6 times more and the rate increased from 17.8% to 27.1% compared to the previous year, the frequency of use internet for purchasing 3-4 times decreased from 67% to 60% (National Statistical Office of Georgia, 2022). 

Table 3. Rate of purchase of goods and services through the internet (%).

It is noteworthy that the launch of the pandemic contributed to the use of Internet banking, which increased from 29.8% to 36.4% from July 2019 to July 2021, and the consumption of Internet audio/video connection - from 85.6% to 94.7% in the same period, in total From June 2016 to July 2021, the use of social networks is unconditionally in the first place (as of July 2021 - 95.3%); The share of Internet users almost every day was 91.7% of the population by July 2021, while it has increased by 1.5% compared to 2019, in 2020 the share of companies that were selling their goods via the internet was only 4.1%, and as for shares of internet sales according to customer types and the countries see table 4 and table 5 (National Statistical Office of Georgia, 2022). 

Table 4. The share of internet sales according to customer types, %.

  Table 5. The share of internet sales according to the countries, %.

 Delivery analysis

The share of enterprises that had access to the Internet is slightly lower than the share of households by 2021: 95% of enterprises had access to the Internet; In addition, it should be noted that the number of entities operating in 2020 decreased by 1.4% in 2020 compared to 2019, and the number of newly registered business entities - by 18.4% (tab.: 6) (National Statistical Office of Georgia, 2022). 

Table 6. The share of enterprises that had access to the Internet as of January 1 of the relevant year and registered business entities (enterprises).

 By 2021, most enterprises were using the average speeds after the Internet at 10 - 30 Mbit / s (32.1%) and 2 - 10 Mbit / s (27.7%), the percentage of the latter decreased by about 13% compared to 2019, but increased by 30-100 Mbit / s usage and amounted to 20.3%, which was 12.6% by 2019 (National Statistical Office of Georgia, 2022).

It should be noted that the share of enterprise orders or bookings was only 17.9% in 2020, and in 2019 - 15.9%, and in 2021 it was relatively reduced to 16.3%; 62.8% of enterprises did not use social media by 2021, compared to 63.4% in 2019; Only 28.5% of enterprises used the following social networks, Facebook, LinkedIn, Xing, Viadeo, Yammer, etc., while by 2019 it was 25.8% (tab.: 7) (National Statistical Office of Georgia, 2022). 

Table 7. Share of enterprises according to the capabilities of the website or website,

as of January 1 of the respective year, %.

The use of the Internet by enterprises to communicate with "government" bodies ranged from 15% to 22%; The enterprise used social media to develop the image/market of the enterprise, communicate with customers, to involve consumers in the creation of new goods/services, etc. did not change in 2019-2020, however, sending invoices by enterprises enjoyed 55.7% -52.6%, here can also be said that Internet access for companies to Authorities was little in 2015-2019, as 2020-2021 data is not given, yet (National Statistical Office of Georgia, 2022). As it is clear, there is a big gap between Georgia and developed countries about the present pictures of digital economy. 

Conclusions

In the background of the pandemic, the data change is less noticeable in the percentage of Internet use by enterprises and consumers (households) in Georgia in 2019-2021. The digital trade rate is also unfavorable and accounts for a very small share of GDP which even does not worth calculating. One of the important issues for digital development is the existence of relevant laws, however, this is insufficient. For the development of the digital economy, first of all, it is necessary to have a state strategy, which will indicate the percentage of the digital economy in the country's GDP. This, of course, has to do with interdependence, and so on. According to the recent research, there can be figured out the following recommendations:

• The government has to support companies to have official websites or web pages for instance on Facebook or other relevant websites, as consumers will have the ability to be informed;
• The government has to support consumers that their rights will be protected in case of false trade or advertisement to be checked;
• The government should actively support secure internet access to be protected all users there;
• Population has to be much more supported with the teaching of IT to increase the above-mentioned skills than it is because this is the key condition that will provide stable development of the digital economy. 

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