'Main problem is political instability': EU report on Georgia's business climate
EU report on business climate in Georgia
According to a study published by the European Business Association (EBA), the main issue for businesses in Georgia is political instability.
In its report, the EBA states that Georgia faces serious political instability, a shortage of labor and skilled personnel, and an unstable exchange rate, which could hinder long-term economic stability overall.
76.8% of the surveyed businesses identified political instability as the main problem.
The second issue is the lack of personnel and their insufficient qualifications, cited as the main problem by 65.9% of businesses surveyed.
The third issue is the ineffective judicial system (58%).
In addition, businesses expressed concerns about corruption and the ineffective regulatory environment, particularly in relation to tax policy, government procurement, and the judicial system, which further complicate the investment climate.
One of the key findings of the study is the acute shortage of skilled labor, which has led to a loss of 55.6 billion lari [over 20 billion USD] in annual income for businesses.
The high level of emigration and inadequate educational programs exacerbate this issue. Despite the high costs, investment in internal staff training yields positive results for businesses, proving that workforce development is a key factor in resilience.
Impact of the shortage of skilled labor:
- GDP loss: -26% annually;
- Deficit in added value: -21.2 billion lari [about 7.6 billion USD];
- Unrealized business income: -55.6 billion lari;
- Decline in trade with the EU and the threat of economic isolation.
Although the EU remains Georgia’s largest trading partner, exports to the EU decreased by 18% in 2023, mainly due to the following reasons:
- High costs of complying with EU standards;
- Lack of accredited laboratories for European certification;
- Limited knowledge of the regulatory framework among businesses.
Furthermore, despite their growth, small and medium-sized enterprises continue to face the issue of insufficient economic contribution, and their access to EU markets remains problematic.
The EU report on Georgia’s business climate highlights the need to accelerate judicial and educational reforms to enhance business confidence. Educational institutions should work closely with the private sector to ensure that skill development programs align with market demands. At the same time, improvements in economic policy and trade infrastructure will be crucial for Georgia’s integration into the EU market.
“The 2024 EU report on Georgia’s business environment presents a complex picture. While economic growth continues, it is overshadowed by political uncertainty, labor shortages, and trade barriers. To maintain momentum, Georgia must address these structural challenges, particularly workforce development, to ensure long-term stability and access to the EU market,” the EBA concludes.
EU envoy’s comment
Commenting on the study, EU Ambassador to Georgia, Paweł Herczyński, emphasized that the country’s regression in reforms is a key factor hindering business development.
“This report serves as an important policy recommendation document for actions within the Economic Cooperation Platform, established in 2022 by the European Business Association with EU support,” Herczyński stated.
He also recalled that in December 2023, the European Council granted Georgia candidate status under the condition of fulfilling nine key recommendations:
“While the vast majority of Georgians support EU membership, the course taken by the Georgian government since spring 2024 is incompatible with the standards required for a candidate country.
The European Union remains one of Georgia’s key economic partners. However, due to the country’s departure from the core values underpinning EU-Georgia relations, the EU has significantly reduced its financial assistance. A fundamental review of ongoing programs is currently underway. As a result of measures taken by the Georgian government, we will be unable to continue many successful projects in the country.”
According to Herczyński, Georgia’s current political trajectory negatively impacts both the economic environment and businesses operating in the country. Many companies entered the Georgian market expecting closer ties with the EU. Today, however, they have legitimate concerns and doubts about Georgia’s future.
