In 2022, Georgia received about 3.6 billion USD in income from Russia through remittances, tourism, and the export of goods, which is 3 times more than the income received from Russia in 2021 from the same sources. This number by 2 times exceeds the income received from Russia in 2019, before the beginning of the Covid-19 pandemic. In 2022, the income from remittances, tourism, and export of goods from Russia was 14.6% of the Georgian economy (GDP), while in 2021, this figure was 6.3%, and the maximum – was 9.9% in 2018. Therefore, Georgia's economic dependence on Russia increased compared to previous years. The growth is mainly due to the soaring remittances.

Georgia's growing economic dependence on Russia constitutes a threat to the country, as Russia has repeatedly utilized economic relations to politically leverage independent countries. Furthermore, the increased economic dependence on Russia is a threat to Georgia in terms of macroeconomics too as the Western sanctions and the war caused the economic crisis in Russia that will continue in 2023 as well.

Among the specific findings of the research, the following should be underscored:

• In 2022, about 15,000 Russian companies were registered in Georgia, which is 16 times more than the number in 2021. A total of 22,400 Russian companies are registered in Georgia, and 66% of them have been registered since the start of the war in Ukraine;
• 95% of the companies registered since March are sole proprietors. This indicates that a part of Russian citizens moved to Georgia to live and do business for a long time;
• In 2022, Georgian exports to Russia increased by 6.8% and amounted to 652 million USD. Since the start of the Russia-Ukraine war, in March-December, the export increased by 3.2% primarily caused by a 5-fold increase in the re-export of passenger cars.
• The share of the Russian market in the total exports of Georgia decreased from 14.4% to 11.7%. The Russian share decreased because Georgian exports to Russia grew at a lower rate (6.8%) than Georgia's total exports to all countries (32%);
• Traditionally, Georgia’s wine exports are highly dependent on the Russian market. In 2022, Georgia’s wine exports to Russia increased by 23% and amounted to 161 million USD. The Russian market accounts for 64% of Georgian wine exports, which is the highest figure since 2013, after the return of Georgian wine to the Russian market;
• In 2022, imports from Russia increased by 79% and amounted to 1.8 billion USD. The share of imports from Russia was 13.1% of the total imports of Georgia, which is the highest in the last 16 years.
• Since the beginning of the war, the import of petroleum products (fuel) from Russia increased the most - 482 million USD (5 times more). The share of Russian fuel in imports was 51%. Import of food products increased by 45% and amounted to 442 million dollars; Import of carbon steel increased 8 times and amounted to 49 million dollars. Import of coal and coke increased by 157% and totaled 70 million USD;

• Although electricity imports from Russia increased by 46%, Russian electricity accounts for only 2.6% of Georgia’s domestic consumption. Imports of natural gas from Russia increased by 32%. Russia's share in the domestic consumption of natural gas in Georgia is around 8%.
• Georgia's dependence on Russian wheat and wheat flour remains high. In 2022, the share of Russian wheat and wheat flour in Georgia’s total import of these products was 97%. 78% of wheat flour consumed in Georgia is imported from Russia.
• In 2022, visitor arrivals from Russia grew exponentially, with 1.1 million visitors arriving in Georgia. In comparison to 2019, the number of visitors from Russia is still 26% less. However, 14% more Russian visitors arrived in Georgia in September-December 2022, compared to the same period in 2019.
• In 2022, the share of Russian visitors in the total number of visitors to Georgia was 20% which is twice as high as in 2021. International visitor statistics is available since 2011, which indicates that the share of Russian visitors had never reached 20% before;
• In 2022, Russian citizens opened more than 60,000 accounts in Georgian banks, and the amount of money placed in their current accounts and deposits increased almost 4 times compared to 2021 and reached 2.8 billion GEL;
• A portion of Russian visitors are actually emigrants who settled in Georgia for a long period. This is indicated by the registration of companies, the opening of tens of thousands of accounts as well as the number of deposits made in Georgian banks by Russian citizens;
• In 2022, remittances from Russia to Georgia increased by 5 times and amounted to 2.1 billion USD. The primary reason for such high growth is the Russian citizens who moved to Georgia, receiving money from Russia.
• In January-September of 2022, Russian foreign direct investment in Georgia amounted to 33 million USD, which is 51% less than the same indicator in 2021. Most of it, 29 million USD was invested in the real estate sector.

Recommendations

The Government of Georgia's goal should be to reduce economic dependence on Russia to a minimum. In April of last year, Transparency International Georgia already published the recommendations^[1] on what should be done to reduce economic dependence on Russia:

To reduce the trade with Russia, the Government of Georgia should start working more actively and expeditiously on concluding free trade agreements with all strategic partners with whom we do not yet have such an agreement. Although such agreements will have positive effects in the long term, given the current situation, Georgia can more vigorously demand strategic partners to accelerate the process of signing foreign trade agreements.

The high share of the Russian market in Georgian wine exports is particularly alarming. As diversification of the wine export market is difficult and cannot be done swiftly, the government should have a strategy on how to reduce dependence on the Russian market in the coming years;

Subsidies from the state budget (grants, concessional credit, etc.) should not be given to businesses that increase economic dependence on Russia. The introduction of this rule will play an important role in reducing the Georgian economy's dependence on Russia, which will increase the economic and political security of the country;

There should be a different practice for Russian citizens to register companies in Georgia. Before obtaining approval for company registration, the applicant should be vetted if he/she is in any way related to sanctioned companies or persons.

I.       Introduction

Georgia's economic dependence on Russia is a threat as Russia has repeatedly used economic leverage against Georgia, Ukraine, Moldova, and other countries since the collapse of the Soviet Union. For example, in 2006 Russia first cut off natural gas and electricity supplies to Georgia, then virtually banned the export of products from Georgia to Russia, and at the end of the same year began deporting Georgian citizens. After the events of 20 June 2019,^[2] Russia banned flights to Georgia.

Therefore, it is important to know the level and the trend of dependence of the Georgian economy on Russia. Russia’s war against Ukraine that started at the end of February 2022 made the monitoring of Georgia's economic dependence on Russia even more relevant. The harsh sanctions imposed on Russia reduce its economy, which also affects the countries that have close economic relations with Russia.

Transparency International Georgia closely monitors this issue. Our latest research^[3] on Georgia’s economic dependence on Russia published at the beginning of November 2022, primarily examined the situation as of January-September 2022. The present report is an update of the aforementioned research, and it examines the indicators and trends in January-December 2022. This report analyzes data on trade between Georgia and Russia, Russian visitor arrivals, remittances, and the number of companies registered in Georgia by Russian citizens.

II.     Key indicators of Georgia’s economic dependence on Russia

1.       Foreign Trade

In 2022, compared to the previous year, the export of Georgian products to Russia increased by 6.8% and amounted to 652 million USD, while the import increased by 79% and reached 1.8 billion USD. The share of exports to Russia was 11.7% of the total exports of Georgia, which is 2.7% point less than it was in 2021 (See Figure 1). The Russian share decreased because Georgian exports to Russia grew at a lower rate than Georgia's total exports to all countries. In 2022, the total export of Georgia increased by 32%.

Data source: GeoStat

As for the imports, the share of imports from Russia increased from 10.1% to 13.6% in the total imports of Georgia, which is the highest in the last 17 years (See Figure 2).

Data source: GeoStat

Overall, in 2022, the share of trade with Russia in Georgia’s total trade grew from 11.4% to 13.1%, which is the highest in the last 16 years.

In 2022, wine was the top of Georgia’s exports to the Russian market with 161 million USD and ferroalloys were the second largest with 109 million USD, followed by the export of non-alcoholic beverages – 90 million USD and light vehicles – 76 million USD (See Figure 3).

Data source: GeoStat

As for the imports, oil products were top of Georgia’s imports from Russia with 623 million USD, followed by wheat and wheat flour – at 128 million USD, natural gases (gas) at 112 million USD, coal and coke – at 78 million USD and cooking oil and margarine – 76 million USD (See Figure 4).

Data source: GeoStat

Traditionally, Georgian wine exports heavily depend on the Russian market. In 2022, Georgian wine worth 161 million USD was exported to Russia, which is a 23% increase compared to the same period of the previous year. The share of the Russian market in the total wine exports of Georgia increased and reached 63.8% which is the highest rate since 2013. (See Figure 5).

Data source: GeoStat

Georgia's dependence on Russian wheat and wheat flour has been also typically high. In 2021, 319,000 tons of wheat worth 87 million USD were imported from Russia, which was 94% of Georgia’s wheat imports. Since 2022, wheat imports have been replaced by wheat flour imports. Due to Russia's increased tax on wheat exports, importers have chosen to import wheat flour instead, which is ultimately cheaper than buying and processing wheat. In 2022, the import of wheat flour from Russia to Georgia, compared to the same period in 2021, increased 6 times, while the import of wheat decreased by 30%. Overall, the share of Russian wheat and wheat flour in Georgia's total import of the same goods was 97%. The share of Russian wheat and wheat flour in food consumption in Georgia is around 78%.^[4]

In recent years, the import of Russian electricity does not have a significant share in the electricity consumption in Georgia. In 2021, the share of electricity imported from Russia was only 1.8%^[5] of Georgia’s electricity consumption, and Russian electricity accounted for 25% of Georgia’s total electricity imports.^[6] In 2022, the share of Russian electricity in Georgia’s electricity consumption was 2.6% and 24% of Georgia’s total electricity imports.^[7]

As for the import of natural gas,^[8] in 2018, natural gas imported from Russia accounted for 2.8% of Georgia's total natural gas imports (by value). In 2021, the import increased to 23.1%. In 2022, natural gas imports from Russia to Georgia increased by 32%. Overall, 93 million USD worth of natural gas was imported from Russia to Georgia, which was 21% of Georgia's total natural gas imports. Azerbaijan remains the major supplier of natural gas to Georgia. In 2022 Azerbaijan supplied a total of 349 million USD worth of natural gas, which is 79% of the total natural gas imports of Georgia. Natural gas imported from Russia accounts for 8% of the total internal consumption of Georgia.^[9]

Right after the beginning of the Russia-Ukraine war, in March-December 2022, Georgian exports to Russia increased by 3.2% and amounted to 559 million USD. In the first months of the war, in March-June exports to Russia decreased by 16%, however, numbers started growing again in July and increased by 14% in July-December. In March-December, the share of the Russian market in the total exports of Georgia was 11.6%, while the figure for the same months of 2021 was 14.4%. In the same period, imports from Russia grew by 86% and amounted to 1,654 million USD. The share of imports from Russia in the total imports of Georgia was 14.2%, while it was 10% in March-December of the last year.

Since the start of the war, the growth of Georgian exports to Russia was primarily due to the increase in the export of light vehicles, which actually is re-export. In March-December 2021, light vehicles worth 15 million USD were exported from Georgia to Russia, and in March-December 2022, 5 times more - 74 million USD. In terms of quantities, 2,483 passenger cars were sold from Georgia to Russia in March-December 2021, and twice more – 5,395 in March-December 2022. In March-December 2022, the export of ethyl alcohol and other spirits increased by 15.5 million USD (by 42%) and wine exports increased by 24 million USD (by 21%). The export of electric heaters increased 2 times and amounted to 13 million USD (See Table 1).

Data source: GeoStat

Since the beginning of the war, the export of ferroalloys has decreased the most - by 75 million USD (by 50%). Export of potatoes decreased by 12.6 million USD (by 88%), export of cigarettes by 11.5 million USD (by 90%) (See Table 2).

Data source: GeoStat

As for imports, in March-December 2022, the import of Russian petroleum products (fuel) increased the most - 5 times (by 482 million USD). In terms of quantities, fuel imports from Russia increased by 3.4 times. In March-December, Russian fuel imports to Georgia were top with a 51% share in Georgia’s total fuel imports. In 2021, the share of Russian fuel in Georgia’s fuel imports was 16.4%. Georgia imported 69% of its fuel mostly from Turkmenistan, Azerbaijan, Romania, and Bulgaria. Russian fuel mainly replaced fuel imports from Azerbaijan, Turkmenistan, and Bulgaria. In March-December, fuel consumption (tonnes) in Georgia rose by 2%, while the export (actually re-export) of petroleum products from Georgia increased by 2 times (28 thousand tonnes).  The largest increase is in exports to Ukraine, Azerbaijan, and Turkey.

The import of food products increased by 138 million USD (by 45%) and amounted to 442 million USD. Among them, the import of flour and cereals increased the most - by 80 million USD. The import of processed grains increased by 26 million USD.

Import of carbon steel rods and semi-finished goods from Russia increased 8 times and amounted to 49 million dollars. The export of the mentioned goods from Georgia did not increase.

The import of coal and coke increased by 43 million USD (by 157%) and reached 70 million USD. In terms of quantities, imports have grown by 48%, which indicates that the total value of coal and coke imported from Russia has risen significantly due to the price increase of coal and coke. Coal and coke exports from Georgia were insignificant (See Table 3).

Data source: GeoStat

In March-December 2022, the import of phone devices from Russia actually stopped and the decrease was 29 million USD. The import of television receiver equipment decreased by 9 million USD (by 78%). The import of corn from Russia decreased by 8.6 million USD (by 54%) as well as imports of fridges by 5 million USD (by 82%) (See Table 4).

Data source: GeoStat

To sum up, since the beginning of the Russia-Ukraine war, Georgia's export dependence on the Russian market reduced, as Georgian exports to other countries increased more compared to the Russian one. However, the dependence on the Russian market in terms of wine exports increased which bears high risks. Dependence on the import of Russian goods has risen significantly, mainly due to the increase in the import of motor fuel and food products.

2.      Tourism and Remittances

Before the Covid-19 pandemic, Georgia was the most dependent on Russia in terms of tourism. According to the National Tourism Administration of Georgia, in 2019, around 1.5 million Russian visitors arrived in Georgia, as a result of which Georgia received approximately 776 million USD in income.

Due to the pandemic, the number of visitors from Russia decreased by 85% in 2020-2021. 213 thousand visitors arrived from Russia and spent about 152 million USD in the country in 2021.

Since March 2022, due to the complete lifting of restrictions related to the pandemic in Georgia and the Russia-Ukraine war, the number of Russian visitors has substantially increased.

Since tourism was greatly reduced in 2020-2021 due to the pandemic, a comparison with 2019 is more relevant to assess the growth rate of tourism. In 2022, 1.1 million visitors came from Russia which is 26% less compared to 2019. However, the number of Russian visitors in September-December 2022 exceeded the figure of September-December 2019 by 14%. The increase since September can be related to the military mobilization announced in Russia on 21 September.

In 2022, the share of Russian visitors in the total number of visitors to Georgia was 20%, which is almost 2 times higher than the rate of 2021, and 4.3% point more than the rate of 2019. Visitor statistics are available since 2011 and the share of Russian citizens among visitors to Georgia has never reached 20% before (See Figure 6).

Data source: National Tourism Administration of Georgia

There are no exact statistics on how many Russian visitors decided to settle in Georgia for a long time. According to the research of the Institute for Development of Freedom of Information (IDFI), 43,000 Russian citizens immigrated to Georgia since the beginning of the war, as of July 31.^[10]

According to the National Bank of Georgia, in 2022 Russian visitors spent 891 million USD in Georgia, which is 15% more than they spent in 2019 and 5 times more than in 2021.

The share of income from Russian visitors in the total income from visitors to Georgia was 25.3% in 2022. The figure was the highest in 2018 – 26.3% (See Figure 7).

Data source: National Bank of Georgia

Traditionally, remittances of Georgians employed in Russia have been a crucial source of income for Georgia. In 2012-2021, the share of remittances received from Russia in Georgia’s total remittances tended to decrease. For example, in 2012, the share of Russia in the total foreign remittances of Georgia was 56%, and in 2021 it was only 17.5%. This was determined by two factors: the amount of money transferred from Russia to Georgia had been reducing from year to year, while the transfers from other countries increased.

In 2022, the situation related to remittances changed significantly due to the Russia-Ukraine war. In January-March 2022, an average of USD 24 million per month was transferred from Russia to Georgia. The remittances began to grow rapidly from April when USD 133 million were transferred, in May, a record amount of 314 million USD was sent. In June-December, the average monthly transfer was 221 million USD. In total, 2.1 billion USD was transferred from Russia to Georgia, which is 5 times more than it was in 2021. The main reason for such high growth is the increased number of Russian citizens moving to Georgia, who either receive money from Russia and/or transfer their savings. It seems that Russian citizens are fleeing the severe situation in their country and the imposed sanctions after the beginning of the war in Ukraine. Apparently, some of them decided to stay in Georgia for a long time. It is noteworthy that the growth of remittances from Russia at such a high rate is a one-time factor and will remain at the same level or decrease next year.

The share of money transferred from Russia in the total remittances received by Georgia increased to 47.3%. The last such high rate was recorded in 2014 (See Figure 8).

Data source: National Bank of Georgia

3.      Foreign Direct Investment

In the past few years, direct investments from Russia to Georgia were not colossal. For example, in 2017-2021, the share of Russian investments in the total foreign investments attracted by Georgia was 4.4%. During the period referred, a total of 307 million USD of investment came from Russia to Georgia. However, approximately 38% of foreign investments in Georgia come from offshore,^[11] and in some cases, those are also associated with Russian money.^[12] In January-September 2022 (the data of the 4th quarter are not yet published), 33 million USD of direct foreign investment came from Russia (See Figure 9), which is 51% less than the figure for January-September last year. In January-June, investments from Russia decreased by 9 million USD but increased by 42 million USD in July-September.

According to BMG,^[13] in the third quarter, foreign direct investment from Russia amounted to 42 million USD, and 29 million USD was invested in the real estate sector.

Data source: GeoStat

3. Russian Companies in Georgia

Large Russian companies in Georgia typically operate through subsidiaries registered in the country. As for medium and small-sized Russian companies, they are mostly founded by Russian citizens in Georgia. Numerous companies registered by Russian citizens in Georgia are registered by persons with Georgian surnames who have only Russian or Georgian-Russian dual citizenship.

Following the review of Georgian business register databases, we have identified companies whose full or partial shareholders are legal or natural persons (citizens) of Russia. Namely, these types of companies are referred to as Russian companies. However, this may not be a complete list, since a company registered in Georgia may be owned by Russian legal entities or individuals through a company in a third country. In addition, often enough, parent companies are registered in the offshores which creates obstacles to disclosing beneficial (final) ownership.

As of December 31, 2022, about 22,400 companies are registered in Georgia whose owners are legal entities and/or citizens of the Russian Federation. 84% of these companies (up to 19,000) were registered in 2018-2022. Prior to 2022, the maximum number in one year - 1,180 companies were registered in 2018. In 2020-2021, the registration of Russian companies decreased due to the pandemic, in 2021 a total of 920 Russian companies were registered.

The increase in the registration of Russian companies in Georgia since 2022 is solely related to the Russia-Ukraine war. Part of the Russian citizens moved to Georgia to live and do business. 190 Russian companies were registered in January-February 2022, and 2,154 companies in March. An average of 1,263 Russian companies were registered per month, in April-September. Since October, the registration of Russian companies increased. In October-December, an average of 1,685 companies were registered per month.

Finally, in 2022, Russian citizens registered 14,977 companies in Georgia, which is 16 times more than the number of companies registered in 2021. (See Figure 10).

Data source: Business Register of Georgia

Data source: Business Register of Georgia

In 2022, 97% of companies registered in Georgia are sole proprietors (individual entrepreneurs). For comparison, the share of sole proprietors among Russian companies registered in 2021 was 51%. 99% of sole proprietors have non-Georgian surnames.

In the first half of 2022, the number of accounts opened by Russian citizens in Georgian commercial banks increased almost by 2 times and amounted to 82,000. The number of accounts was not increasing significantly in previous years. In 2022, the amount of money placed in current accounts and deposits by Russian citizens in Georgian banks increased almost 4 times reaching 2.8 billion GEL. In comparison, growth in 2021 was only 1.3%. At the end of 2022, Russian citizens had 535 million GEL in current accounts and 2.3 billion GEL in demand and time deposit accounts.^[14]