Georgia's economic dependence on Russia is growing

Georgia’s economic dependence on Russia is growing

According to a study published by NGO Transparency International Georgia, compared to previous years Georgia’s economic dependence on Russia is increasing, mainly due to an increase in remittances.

Also according to the organization, since the beginning of the war in Ukraine about 6,400 Russian companies have been registered in Georgia, which is seven times higher than the annual figure for 2021. In total, 13,500 Russian companies are registered in Georgia, half of which were registered after the invasion of Ukraine.

In January-June 2022, Georgia received about $1.2 billion in income from Russia through remittances, tourism and the export of goods, which is 2.5 times more than income received in January-June 2021.

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Nuts & bolts

From the specific results of the study, the following facts are salient:

● 93% of companies registered since March are sole proprietorships. This indicates Russian citizens who have moved to Georgia to live and do business;

● Traditionally, wine exports are highly dependent on the Russian market. In January-June 2022, $58 million worth of wine exports to Russia accounted for 58% of Georgia’s total wine exports;

● After the start of the war, imports of oil products from Russia increased the most — by 280%;

● Electricity imports quadrupled (USD 9 million). Imports of coal and coke increased threefold and amounted to 23 million US dollars;

● Georgia’s dependence on Russian wheat and flour is still high. In January-June 2022, the share of Russian wheat and wheat flour in the total import of Georgian was 95%;

● Although the visitor growth rate from Russia in 2022 increased significantly, and 247,000 Russian citizens entered Georgia from January-June, their number is still three times less compared to January-June 2019;

● In the first quarter of 2022, FDI from Russia decreased by USD 11.2 million;

● Remittances and company formation by Russian citizens in Georgia increase the risk that Georgia may be used to circumvent sanctions against Russia.

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NGO recommendations

Transparency International Georgia has appealed to the government with the following recommendations:

● To reduce trade with Russia, start working more actively and efficiently on signing free trade agreements with all strategic partners with whom Georgia does not yet have such an agreement;

● Subsidies from the state budget (grants, concessional loans, etc.) should not be provided to enterprises that increase economic dependence on Russia;

● Georgia should develop a strategy to reduce energy dependence on Russia. Currently, electricity and natural gas imported from Russia are not a large share of Georgia’s domestic consumption, but it remains important to reduce dependence on Russia.

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It should also be noted that fewer Ukrainians entered Georgia in June than in the same period of 2021. In June, 19,585 citizens of Ukraine crossed the Georgian border, and compared to June of last year, the number of Ukrainian citizens who entered Georgia decreased by 11%.

After the start of the war, about 30 member organizations of the Georgian Tourism Industry Alliance called on the authorities to stop the visa-free entry of Russian citizens immediately.