Transparency International Georgia (TIG), a local watchdog, published a report on 4th of May, which analysed the threats and trends of the country's economic dependence on Russia.
TI Georgia releases report on Georgia’s economic dependence on Russia
By Natalia Kochiashvili
Tuesday, May 5
According to the report, Georgia's economy depends on Russia mainly in terms of tourism, foreign trade and remittances, which, according to TIG, is a ‘significant challenge’ to the country's economic security. The report notes that the revenue from tourism in Russia alone was $ 700 million last year.
During recent years, exports of Georgian products to Russia have been growing, reaching about $500 million in 2019. Russia's share in Georgia's total exports were 13.2%. However, the document emphasizes that against the background of the pandemic of Covid-19, since March 2020, Georgia's economic dependence on Russia is ‘naturally’ declining, (exports to Russia falling to 11.7% in the first quarter of this year), which gives Georgia the opportunity to ‘structurally transform the economy and become less dependent on Russia.’
“At least this will be inevitable in the case of tourism, because the attitude towards Georgian tourism, including Russian tourists, will decrease and it may take several years to return to the level of 2019,” TIG said.
According to the report, in 2019, Georgia received about $ 1.6 billion in revenue from tourists, remittances and goods exported from Russia, which is 9% of Georgia's gross domestic product.
The share of Russian visitors in the total number of foreign visitors to Georgia reached a maximum of 16% in 2018. Due to the restriction on flights imposed from July 2019, Russia's share in Georgian tourism decreased to 15.7%. The ongoing pandemic has also had a significant impact on the influx of visitors from Russia. In the first quarter of 2020, the number of visitors from Russia decreased by 32%, while its share decreased to 13%.
“Georgia's economy will suffer far more from Covid 19 than Russia can potentially economically hurt us,” the document reads, adding that this will give the Georgian population and government an opportunity to be less vulnerable to economic sanctions expected from Russia, and develop some sort of immunity.
Speaking about the products exported to the Russian Federation, TIG draws attention to wine and explains that the high dependence of Georgian wine exports on the Russian market also carries political risks.
In 2013-2019, Georgian wine exports increased by $158 million (244%), of which $ 110 million came from sales in Russia. In 2019, Georgia exported $133 million worth of wine to Russia, which was 57% of Georgia's total wine exports.
The organization also states that the population of the winemaking region, Kakheti, depends mainly on income from wine exports and in case of export ban, they will suffer a large share of losses, since many families do not have an alternative source of income.
When talking about the products imported from Russia, TIG states that 100% of the wheat imported in the first quarter of 2020 was from Russia. In general, up to 70% of wheat consumed by Georgia comes from Russia. Russia's share in Georgia’s wheat imports is over 90%.
The organisation believes that such a high dependence on wheat imports from Russia poses a certain threat, as they estimate that stopping wheat imports from Russia to Georgia for political or other reasons will lead to a shortage of wheat in Georgia and increase the price of bread.
As for the remittances coming from Russia, they have been decreasing lately. In 2019, $ 429 million was transferred from Russia, which is 29% of Georgia's total remittances. In 2012, this share was 56%. The year 2020 also began with the decline in remittances from Russia. In January-March, the share of Russian remittances fell to 21%.
TIG predicts that over time, Georgia's dependence on remittances from Russia will decline further, as European countries are more attractive to Georgian emigrants, and remittances from these countries are on the rise.
According to the TIG, Georgia's economic dependence on Russia is not just an economic issue, it is a challenge to the country's security. With this in mind, the organization believes that the goal of the Georgian government should be to minimize economic dependence on Russia.
NGO addresses the government with the following post-pandemic recommendations: work even more actively to diversify its export markets, especially in terms of wine exports; Promote local production of wheat and diversification of wheat imports as much as possible, within the approach of helping the business sector to reduce damage caused by pandemic; Unlike previous years, after opening the borders, Russia should not be the target market for attracting tourists, resources allocated for marketing activities should be more actively directed to other countries.
TIG claims the pandemic will inevitably lead to a certain reorganization of Georgia’s economy, and one of the consequences of that should be to have the economy less dependent on Russia.