In January-September 2022, Georgia received about 2.2 billion USD in income from Russia through remittances, tourism, and the export of goods, which is 2.6 times more than the income received from Russia in January-September 2021 from the same sources. This number by 64% exceeds the income received from Russia in January-September 2019, before the start of the Covid-19 pandemic. In January-September 2022, the income from remittances, tourism, and export of goods from Russia was 12.6% of the Georgian economy (GDP), while in January-September 2021, this figure was 6.3%, and the maximum - 10.4% in 2019. Therefore, Georgia's economic dependence on Russia has been increasing compared to previous years. The growth is mainly due to the soaring remittances.

Despite the fact that in 2022 Georgia's economic dependence on Russia has increased significantly, however, it has not reached such a level that if economic relations with this country are completely disrupted, Georgia still will be able to develop and will not face a deep crisis. Nevertheless, since the dependence is increasing and may cause serious problems for the country in the future, it is necessary to take active steps to reduce it.

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

• In March-September 2022, about 9,500 Russian companies were registered in Georgia, which is a tenfold increase compared to the annual number in 2021. A total of 17,000 Russian companies are registered in Georgia, and half of them have been registered since the start of the war in Ukraine;
• 97% 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 January-September 2022, Georgian exports to Russia increased by 11% and amounted to 473 million USD. Since the start of the Russia-Ukraine war, in March-September, the export increased by 6.3% primarily caused by a 4.4-fold increase in the re-export of passenger cars.
• Traditionally, Georgia’s wine exports are highly dependent on the Russian market. In January-September 2022, 109 million USD worth of wine exported to Russia was 63% of Georgia's total wine exports;
• In January-September 2022, imports from Russia increased by 73% and amounted to 1.2 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;
• After the start of the war, the import of oil products (fuel) from Russia increased the most - by 350% (by 329 million USD). The share of Russian fuel in imports was 44%. Import of coal and coke increased 3 times and totaled 57 million USD;
• Although electricity imports from Russia increased by 3.6 times, Russian electricity accounts for only 3% of Georgia’s domestic consumption. Imports of natural gas from Russia decreased by 32%. Russia's share in the domestic consumption of natural gas in Georgia is around 7%.
• Georgia's dependence on Russian wheat and wheat flour still remains high. In January-September 2022, the share of Russian wheat and wheat flour in Georgia’s total import of these products was 96%. 78% of wheat flour consumed in Georgia is imported from Russia.
• In 2022, tourist arrivals from Russia grew exponentially, 780 thousand visitors arrived in January-September. In comparison to January-September 2019, the number of visitors from Russia is still 35% less. However, 6% more Russian visitors arrived in Georgia in August-September 2022, compared to the same period in 2019.
• In January-September 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;
• The portion of Russian visitors are actually emigrants who settled in Georgia for a long period. This is indicated by the registration of companies and the statistics of the Georgian-Russian border crossings (entry-exit) as well as the opening of tens of thousands of accounts in Georgian banks by Russian citizens;
• In April-September 2022, remittances from Russia to Georgia increased 5 times and amounted to 1,135 million. The main reason for such high growth is the Russian citizens who moved to Georgia, receiving money from Russia.
• In the first half of 2022, direct foreign investments from Russia amounted to 12 million USD, meaning an investment worth 12 million USD outflew the country;
• Substantially increased imports of Russian goods, remittances, and setting up companies by Russian citizens pose a risk that Georgia will be used to circumvent sanctions imposed on Russia. Regardless of whether or not Georgia is used for evading the sanctions, the increased economic ties mean that Russian businesses and citizens, in general, can use Georgia to escape the economic crisis created in Russia due to the sanctions.
• Since the war and consequent sanctions have caused an economic crisis in Russia, which is likely to continue in the coming years, the increased dependence of Georgia on the Russian economy represents a threat in terms of macroeconomy too. It is expected that remittances from Russia as well as tourism and trade will significantly decrease in the future which will harm the Georgian economy.

Recommendations

The goal of the Government of Georgia should be the reduction of economic dependence on Russia to a minimum. In April of this year, Transparency International Georgia has already co-developed and made public 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 (FTA) 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 actively demand strategic partners to accelerate the process of signing FTAs.
• 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.

Furthermore, there has to be a different practice introduced about establishing companies in Georgia for Russian citizens to prevent using Georgia for sanctions evasion. Before receiving approval for company registration, it has to be vetted whether the applicant is in any way related to sanctioned companies or people.

I.Introduction

Georgia's economic dependence on Russia is threatening, 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 it.

Transparency International Georgia closely monitors this issue. Our latest research^[3] on Georgia’s economic dependence on Russia published in August 2022, primarily examined the situation as of January-June 2022. The present report is an update of the aforementioned research, and it examines the indicators and trends in January-September 2022. The report analyzes trade between Georgia and Russia, Russian visitor arrivals, remittances, and the number of companies registered in Georgia by Russian citizens. The next publication is planned to be released in early 2023.

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

1.Foreign Trade

In January-September 2022, compared to the same period of the previous year, the export of Georgian products to Russia increased by 11% and amounted to 473 million USD, while the import increased by 73% and reached 1.2 billion USD. The share of exports to Russia was 11.5% of the total exports of Georgia, which is 3.3% point less than it was in January-September 2021 (See Figure 1). The decrease was due to the fact that Georgian exports to Russia grow to a lesser extent than the total exports of Georgia. In January-September 2022, the total export of Georgia increased by 37.4%.

Data source: GeoStat

As for the imports, the share of imports from Russia increased from 10.2% to 13.1% in the total imports of Georgia, which is the highest in the last 16 years (See Figure 2).

Data source: GeoStat

Overall, in January-September 2022, the share of trade with Russia in Georgia’s total trade grew from 11.4% to 12.6%, which is also the highest in the last 16 years.

In January-September 2022, wine was the top of Georgia’s exports to the Russian market with 109 million USD and ferroalloys were the second largest with 105 million USD. The export of ferroalloys to Russia reduced from 78.6 thousand tons to 54.2 thousand tons, however, due to the price increase total value decreased by only 10.3 million USD. Then follows the export of passenger cars – 45.7 million USD and alcoholic beverages – 40.6 million USD (See Figure 3).

Data source: GeoStat

As for the imports, oil products were top of Georgia’s imports from Russia with 431 million USD, followed by wheat and wheat flour – 85 million USD, coal and coke – 65 million USD, and natural gases (gas) 46.5 million USD (See Figure 4).

Data source: GeoStat

Traditionally, Georgian wine exports heavily depend on the Russian market. For instance, in 2021, 54.7% of wine exported from Georgia (worth 131 million USD) went to Russia. In January-September 2022, Georgian wine worth 109 million USD was exported to Russia, which is a 15.3% 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 63.1% (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. In 2020, the share of Russian wheat in Georgia’s wheat imports was 99%, and in 2019 it was up to 100%. 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 was ultimately cheaper than buying and processing wheat. In January-September 2022, the import of wheat flour from Russia to Georgia, compared to the same period in 2021, increased 11 times, while the import of wheat was halved. The share of Russian wheat and wheat flour in Georgia's total import of the same goods was 96%. Notably, in 2021, the share of Russian wheat and wheat flour in food consumption in Georgia was 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%^[6] of Georgia’s total electricity imports. In January-September 2022, the share of Russian electricity in Georgia’s electricity consumption was 3%,^[7] and 49% of Georgia’s total electricity imports.

There is a different situation in the import of natural gas.^[8] For example, in 2018, natural gas imported from Russia accounted for 2.8% of Georgia's total natural gas imports (by value). In 2020, the import increased to 12.2%, and in 2021 it reached 23.1%. In January-September 2022, natural gas imports from Russia to Georgia decreased by 37%. Overall, 34.2 million USD worth of natural gas was imported from Russia to Georgia, which was 12% of Georgia's total natural gas imports. Azerbaijan remains the major supplier of natural gas to Georgia from which natural gas worth 246 million USD was imported^[9] in January-September 2022. Natural gas imported from Azerbaijan was 88% of the total natural gas imports of Georgia.

Since the start of the Russia-Ukraine war, in March-September 2022, Georgian exports to Russia increased by 6.3% and amounted to 380 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 33% in July-September. In March-September, the share of the Russian market in the total exports of Georgia was 11.4%, while the figure for the same months of 2021 was 14.3%. In the same period, imports from Russia grew by 81% and amounted to 1,062 million USD. The share of imports from Russia in the total imports of Georgia was 13.8%, while it was 10.2% in March-September 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 passenger cars, which is actually re-export. In March-September 2021, passenger cars worth 10 million USD were exported from Georgia to Russia, and in March-September 2022, 4.4 times more - 44 million USD. In terms of quantities, 3,024 passenger cars were sold from Georgia to Russia in January-September 2022, and half as much – 1,435 in March-September of 2021.

In January-September 2022, the export of ethyl alcohol and other spirits increased by 16 million USD (78%) and wine exports increased by 9 million USD (11%). Since the beginning of the war, the export of ferroalloys has lowered the most in terms of amount - by 22 million USD (by 23%). Exports of water and mineral water were also reduced by 12 million USD (33%) caused by a decrease in the production of Borjomi.

The 33% increase in exports to Russia in July-September 2021 was mainly caused by the increase in the export of vehicles (by 27 million USD), ethyl alcohol and alcoholic beverages (by 18 million USD), and wine (by 16 million USD).

As for imports, in March-September 2022, the import of Russian petroleum products (fuel) increased the most - 5 times (by 329 million USD). In terms of quantities, fuel imports from Russia increased 3 times. In March-September, the Russian fuel imports to Georgia were top with a 44% share in Georgia’s total fuel imports. In 2021, the share of Russian fuel in Georgia’s fuel imports was 18% as Georgia imported mostly from Turkmenistan, Azerbaijan, Romania, and Bulgaria. Russian fuel mainly replaced fuel imports from Azerbaijan, Turkmenistan, and Bulgaria. In March-September, fuel consumption in Georgia rose by 3%, while the export (actually re-export) of petroleum products from Georgia did not increase significantly.

The import of coal and coke increased by 37 million USD and reached 57 million USD. In terms of quantities, imports have grown by 21%, 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.

The import of Russian margarine increased 5 times and totaled 23.6 million USD. The electricity import increased 3.6 times (by 8.7 million USD).

In March-September 2022, the import of phone devices from Russia actually stopped and the decrease was 21.3 million USD (93%). Import of natural gas decreased by 27% (10 million USD). The import of corn from Russia decreased by 85% (8.6 million US dollars).

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 coal.

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.^[10]

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 2021, 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 appropriate to assess the growth rate of tourism this year. In January-September 2022, 780 thousand visitors came from Russia which is 35% less compared to the period of 2019. However, the number of Russian visitors in August-September this year exceeded the figure of August-September 2019 by 6%. In particular, 5,362 more Russian visitors entered Georgia in August 2022 compared to August 2019, and 15,767 more in September 2022 than in September 2019. The increase in September can be related to the military mobilization announced in Russia on 21 September of this year. According to the Ministry of Internal Affairs,^[11] an average of 10,150 people arrived from Russia per day during September 23-26, 2022, which is 60% more than the daily average of September 17-21.

In January-September 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 3.4% point more than the rate of 2019. Visitor statistics are available since 2011 and clearly, 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^[12] of the Institute for Development of Freedom of Information (IDFI), In March-June 2022, 18% of visitors from Russia stayed in Georgia (difference between entries and exits), which was 5% in the same period of 2019. As of July 31, 43,000 Russian citizens immigrated to Georgia after the start of the war.^[13]

According to the National Bank of Georgia, in January-September of the current year, Russian visitors spent 563 million USD in Georgia, which is 13% less than it was in 2019. However, in July-September 2022, Russian visitors spent 138 million USD more in Georgia than in the same period of 2019.

The share of income from Russian visitors in the total income from visitors to Georgia was 22.4% in the 9 months of 2022. A similar figure in 2019 was 25.1%. (See Figure 7).

Data source: National Bank of Georgia

Traditionally, funds transferred by Georgians employed in Russia have been a crucial source of income for Georgia. In recent years, 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 caused by two factors: the amount of money transferred from Russia to Georgia has been reducing from year to year, while the transfers from other countries have increased.

In 2022, the situation related to remittances changed significantly, which is a result of 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, and in June-September, an average monthly transfer was 154 million USD. In total, 1,135 million USD were sent from Russia to Georgia in 9 months, which is even more than the annual figure of previous years. As a result, the share of Russia in Georgia’s total remittances increased to 40%. The last time such a high figure was in 2015 (See Figure 8). Transfers from Russia to Georgia in April-June 2022 increased 5 times compared to April-September 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 difficult situation in their country and the imposed sanctions after the start 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.

Data source: National Bank of Georgia

3.Foreign Direct Investments

In recent years, direct investments from Russia to Georgia were not large-scale. 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,^[14] and in some cases, it is also associated with money of Russian origin.^[15] In January-June 2022, direct foreign investments from Russia, instead of increasing, decreased by USD 12 million (See Figure 9).

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 September 30, 2022, about 17,000 companies are registered in Georgia whose owners are legal entities and/or citizens of the Russian Federation. 79% of these companies (up to 9,500) were registered in 2018-2022.^[16] Before 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 from 2022 is uniquely related to the Russia-Ukraine war. Part of the Russian citizens moved to Georgia to live and do business. 193 Russian companies were registered in January-February this year, and 2,150 companies in March. An average of 1,226 Russian companies were registered per month, in April-September. In conclusion, tenfold companies registered in March-September 2022 than throughout the year 2021.

Data source: Business Register of Georgia

Data source: Business Register of Georgia

97% of companies registered since March of this year 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.

According to the research^[17] published by the Institute for Development of Freedom of Information, after the start of the Russia-Ukraine war, the number of accounts opened by Russian citizens in Georgian commercial banks increased by 4 times. As of August 31, more than 60 thousand Russian citizens had active bank accounts in commercial banks of Georgia, of which 45.3 thousand were opened after the war in Ukraine. The amount of money placed on deposits by Russian citizens increased almost 3 times and reached 1.9 billion GEL.

Publication of this report was made possible with the support of the Open Society Foundations. The views expressed in this publication are those of Transparency International Georgia and do not necessarily reflect the views of the donors.