Bordered by Russia to the north and Turkey, Armenia and Azerbaijan to the south, Georgia is taking a sharp turn towards Russia. The government suspended talks on accession to the European Union after the European Parliament resolution on Georgian election fraud. Georgians took to the streets and fierce protests are ongoing; however, looking at the results of the Georgian economy, many things become clear.
The Georgian Dream party has been ruling Georgia almost independently since 2016, although it has been involved in government since 2012, but then as part of a coalition. It is now facing strong unrest in the country after elections that have been allegedly rigged, at least according to the European Parliament. In response, the Georgian government has suspended the accession process to the European Union for four years
The sixth-highest economic growth in the world
Looking at the economic results, it must be admitted that during the Georgian Dream government, the country developed economically at a very high rate, one of the highest in the world. This year, according to the IMF’s October forecasts, it will see 7.6 percent GDP growth, which is the sixth-highest growth in the world. In 2023, only 11 countries developed faster than Georgia, including Georgia’s neighbor Armenia.
Since 2016, Georgia has moved from 95th to 75th place in the world in terms of national income per capita, calculated according to purchasing power parity (PPP). Poland is in 42nd place in this ranking.
While in 2016 GDP per capita according to PPP in Georgia amounted to 46 percent of that in Poland, this year it is to be 53 percent. Georgia is quickly catching up with us, although Poland is one of the fastest developing countries in the European Union.
Compared to Russia, this is a jump from 51 to 58 percent, and IMF forecasts say that next year it will exceed 60 percent. The level of Chinese GDP per capita was exceeded by Georgia in 2022, and this year Georgians are expected to exceed 104 percent. With Georgians able to boast about faster development than China, it is certainly a reason for satisfaction among the Georgian population
Their standard of living is improving quite rapidly, but what is driving this improvement? The economy is a good explanation for why the Georgian government chose Russia over the West.
Tourism and new technologies
The fastest growing sector in Georgia is the information and communications sector, which has grown by 260 percent since 2016 in current prices and accounted for 4.1 percent of GDP last year. This year, it grew by 19.8 percent in the second quarter. The growth of this sector in the Georgian economy was clearly helped by emigration from Russia immediately after the outbreak of the full-scale war between Russia and Ukraine. In 2022, the first year of the conflict, the dynamics of this sector amounted to almost 64 percent.
The entertainment and leisure sector, i.e., tourism, is also developing rapidly, with gross income increasing by 176 percent in current prices since 2016; this year it grew by 17.3 percent year-over-year and currently generates 3.5 percent of GDP.
The trade sector is also very dynamic, with a 157 percent increase since 2016 and 8.1 percent this year, which is 12.4 percent of GDP. This is related to the development of tourism and the increase in the wealth of society.
The most important segment in Georgian GDP is still industry, which has grown by 106 percent since 2016, and in the second quarter of this year by 15.9 percent y/y in current prices. It currently accounts for 15.9 percent of GDP.
Based on this data, from the economic perspective, it is industry and its export capabilities that are another reason for the Georgian government to shift its emphasis from the EU to Russia.
Collapse of exports to the EU
With the Covid-19 break in 2020, Georgia’s exports in dollars have been growing steadily. In 2022, they will grow by 31.6 percent y/y to $5.6 billion, and last year they will reach $6.1 billion (+9 percent y/y). However, the growth rate has fallen this year to +5.3 percent y/y, for the 12 months ending in October.
And it fell as a result of the collapse in exports to the EU market, while exports to Russia, despite the weakness of the ruble, grew in dollar terms in 2023 by another 2.3 percent to $657 million. Meanwhile, those to EU countries fell by as much as 18.3 percent to $704 million. In 2024, it looks even worse, with exports to the EU falling by as much as 27.7 percent y/y to $549 million in the 12 months ending in October, while exports to Russia, although they also fell, decreased by only 0.3 percent to $678 million.
Russia has become a more important market for Georgia than the EU, and a place where Russian tourists spend their money. The economic choice for Georgia is quite obvious at the moment.
Even neighboring countries are now larger recipients of Georgian goods than the EU: Azerbaijan ($759 million for the 12 months to October) and Armenia ($641 million). Georgia exports slightly less to Turkey ($475 million). The country’s economic interests are closely linked to the nearby geographical region, not the more distant EU.
Not wine, but KAZ trucks
At the same time, Georgia’s most important export is not the famous Georgian wines, but transport equipment. Its foreign sales increased since 2016 from $151 million per year to $872 million in 2023. What’s more, counting the 12 months to the end of October 2024, it is already as much as $2.5 billion, or as much as 36.4 percent of Georgian exports — according to data from the Georgian Statistical Office.
Of this, as much as $974 million went to Kyrgyzstan this year, and €625 million to Kazakhstan. The surge in exports of transport equipment to these two countries has occurred since 2022, and it is hard not to link this to Russia’s aggression against Ukraine.
In 2021, exports of transport equipment from Georgia to Kazakhstan amounted to $24 million, a year later to $108 million, and this year to October to $625 million.
To Kyrgyzstan, exports of transport equipment amounted to $2.2 million in 2021, $5.8 million a year later, $66.2 million in 2023, and $127 million in the first 10 months of 2024. It seems that the Georgian economy has been harnessed into Russia’s war machine, and it is benefiting from it.
The largest transport equipment company in Georgia is the Kutaisi-based KAZ truck manufacturer, part of the Georgian Industrial Group holding. This company was founded and is currently headed by David Bezhuashvili (30 percent of shares), a Georgian parliamentarian until 2016, whose brother Gela was even the country’s foreign minister.
Georgian wine is bought by Russians and Poles
When it comes to wine, Russia is also the largest recipient. In the 10 months of this year, out of the $237 million of wine exports, Russians bought $161 million. Interestingly, Poland is the second-largest recipient, but this means imports amounting to only $13 million.
As can be seen from the above, Georgia’s economy benefits from contacts with Russia. Economic links with the European Union are much smaller. At the same time, the data suggests that Georgia is making money from the war in Ukraine, fueling one of the highest economic growth rates in the world. A possible redirection of economic preferences could probably only occur after Turkey’s admission to the EU, which does not seem to be the case in the coming years.
