Reflection of the Ukraine-Russia war on the socio-economic situation in Georgia

 Reflection of the Ukraine-Russia war on the socio-economic situation in Georgia

By: Nika Chitadze

Professor of the International Black Sea University

Director of the Center for International Studies 

 

After the start of the Russian aggression against Ukraine, the question is how the war between the two countries will affect the economic situation in Georgia?

 

It should be noted that the war between the two countries harms the Georgian economy, the main reason for which is that our country has very close economic relations with both Russia and Ukraine, namely:

 

Trade relations

 

Russia and Ukraine are one of the most important trade partners for Georgia. For example, in 2021, goods with a cost of about 610 million US dollars were exported from Georgia to Russia, while products with a cost of about 307 million US dollars were sold in Ukraine. In total, in 2021, the share of goods exported to Russia and Ukraine in total exports is about 21%, which is quite a solid figure.

 

At the same time, Georgia's trade and economic relations with both countries have been actively developing in previous years. In particular, in 2017, the share of goods exported from Georgia to Russia and Ukraine in total exports was 19.1%, in 2018 - 18.3%, in 2019 - 19.7%. In 2020, the share of exports in the two countries in total exports was set at 19.8%.

 

As for imports, in 2021 the goods with the cost of $ 1.22 billion were imported from Russia to Georgia, while the volume of imports from Ukraine amounted to $ 451 million. In total, in 2021, the share of imports from these two countries in total imports was 14.6%. We should also pay attention to the fact that strategic products such as oil and oil products, wheat and meslin, as well as sunflower oil are imported to Georgia from Russia.

 

If the war lasts a long time, Georgia may have to diversify its markets, both for export and import or in other words, to capture new markets.

 

Money transfers

 

At present, remittances to Georgia play an important role in the structure of the country's GDP. It should be noted that the volume of remittances from Russia is quite high. For example, in 2021, Georgia received about $ 2.350 billion in remittances. About $ 411 million of these remittances come from Russia, while about $ 93 million were transferred from Ukraine last year in the form of remittances. In other words, it turns out that Georgia received more than $ 500 million in remittances from these two countries in 2021, which is about 21% of the total remittances. This is a pretty solid figure.

 

Foreign investment

 

As for the volume of investments, it should be noted that the volume of investments in Georgia from these countries is quite low, which will not have a significant impact on our economy. For example, in the first nine months of 2021, $ 299 million in foreign investment flowed into Georgia, from which Ukraine and Russia totaled only $ 15 million. There was a similar low intensity in previous years, more specifically, in 2017 the share of foreign investment in Russia and Ukraine in the total FDI was only 2.9%, in 2018 5.8%, in 2019 6.1%, and in 2020 from Russia and Ukraine Investments in Georgia the share of total investments was 9.7%. The trend is upward, though its importance is still low. The impact of the war is likely to be indirect, in particular, countries in the post-Soviet space will be unattractive for investment amid escalating tensions in the region.