Most Russian companies registered in Georgia after February

Russian companies in Georgia

According to a new report from Transparency International-Georgia, there are 17,000 registered Russian companies in Georgia, more than half of which were registered after the start of the war in Ukraine.

A report prepared by the organization on Georgia’s economic dependence on Russia and the impact of the Russian-Ukrainian war says that in 2022 Georgia’s economic dependence on Russia has increased significantly, although it has not yet reached the point where it faces a deep crisis after the break in economic relations with Russia.

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The report also states that some newcomers from Russia are in fact immigrants and have settled in Georgia.

The organization notes that in January-September 2022, Georgia received about $2.2 billion in income from Russia through remittances, tourism and exports of goods, which is 2.6 times more than in January-September 2021 from the same sources.

Some conclusions of the study:

In March-September this year about 9,500 Russian companies were registered in Georgia, which is 10 times higher than in 2021. In total, 17,000 Russian companies are registered in Georgia, with more than half of them registered after the Russian invasion of Ukraine;

97% of registered companies since March are sole proprietorships. This indicates that some Russian citizens have moved to Georgia permanently;

In January-September 2022, Georgia’s exports to Russia increased by 11% and amounted to $473 million. After the start of the war in March-September, exports increased by 6.3%, which was mainly due to a four-fold increase in the re-export of passenger cars;

Traditionally, the export of Georgian wines is highly dependent on the Russian market. In January-September 2022, $109 million worth of wine exports to Russia accounted for 63% of Georgia’s total wine exports;

In January-September 2022, imports from Russia increased by 73% and amounted to $1.2 billion. The share of imports from Russia in Georgia’s total imports amounted to 13.1%, the highest figure in the last 16 years;

After the start of the war, imports of fuel from Russia increased the most, by 350% (329 million US dollars). The share of Russian fuel in imports was 44%. Imports of coal and coke increased three times and amounted to 57 million US dollars;

Despite a nearly four-fold increase in electricity imports from Russia, Russian electricity accounts for only 3% of Georgia’s domestic consumption. Imports of natural gas from Russia decreased by 32%. The share of Russian gas in Georgia’s domestic consumption is up to 7%.

Georgia’s dependence on Russian wheat and flour is still high. In January-September 2022 the share of Russian wheat and wheat flour in Georgia’s total wheat and wheat flour imports amounted to 96%. 78% of the wheat flour consumed in Georgia comes from Russia.

In 2022, the growth rate of the arrival of visitors from Russia accelerated significantly, and 780,000 visitors arrived in Georgia in January-September. Compared to January-September 2019, the number of visitors from Russia is still 35% less. However, in August-September, taken separately, this year there were 6% more visitors from Russia than in August-September 2019;

In January-September 2022, the share of Russian visitors in the total number of those who visited Georgia was 20%, which is 2 times higher than in 2021. Visitor statistics have been available since 2011, which show that the share of Russian citizens among visitors has never before reached 20%;

Some of the visitors from Russia are actually immigrants and settled in Georgia long ago. This is demonstrated by both the registration of companies and the statistics of bilateral crossing of the Georgian-Russian border (entry-exit) and the opening of 10,000 accounts in Georgian banks by Russian citizens;

In April-September 2022, money transfers from Russia to Georgia increased five times and amounted to USD 1.135 million. The main reason for such a high growth is Russian citizens moving to Georgia who send money from Russia;

In the first half of 2022, foreign direct investment from Russia amounted to 12 million USD, that is, 12 million dollars of investments left the country.

Significantly increased imports of Russian goods, remittances and the creation of companies by Russian citizens in Georgia increase the risk that Georgia will be used to circumvent sanctions imposed on Russia. Regardless of whether Georgia is being used for this purpose, the strengthening of economic relations with this country means that, in general, Russian businesses and Russian citizens can use Georgia to get out of the difficult economic situation created by sanctions in Russia.

Since the war and sanctions have caused an economic crisis in Russia, which is likely to continue in the coming years, the growing dependence of Georgia on the Russian economy is also dangerous from a macroeconomic point of view. In the future, remittances from Russia, tourism and trade revenues are expected to decline significantly, hurting the Georgian economy.

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The study provides recommendations that, in the opinion of the organization, will reduce economic dependence on Russia. For example, in order to reduce trade with Russia, the Georgian government should quickly begin work on signing free trade agreements with all strategic partners with whom there is no such agreement yet.

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“While the real positive impact of such agreements is long-term, based on the current situation Georgia may be more active in asking its strategic partners to speed up the free trade agreement,” reads the report.

The organization also states that subsidies from the state budget (grants, concessional loans, etc.) should not be given to businesses that increase economic dependence on Russia.

“The implementation of the rule will play an important role in reducing the dependence of the Georgian economy on Russia, which will increase the economic and political security of Georgia,” explains Transparency International-Georgia.