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Georgia Economic Outlook 2017: Positive External Developments

March 29, 2017

Georgia’s internal drivers for the economic growth in 2017 are largely unchanged, however external environment has been changing for the past months from negative to stable and positive.




Recent years were not the best for South Caucasian countries mostly because of region-surrounding political and economic instability. In 2016 things started stabilizing, however it had limited positive impact on Georgian economy due to the time lag and the slowed down business decision making process because of 2016 general elections.


Russia is the biggest player in South Caucasus and its regional politics remain matter of concern. In that regard 2017 seems to be more relaxed, it is clear Russia will not bully Azerbaijan, also Azerbaijan will not be allowed to escalate frozen conflict with Armenia since status que has been reaffirmed by the new ‘friendship’ between Turkey and Russia, which seems to last for a few years to counter the EU. Again, due to Russia’s economic and political conditions there is close to zero probability of any escalation of frozen conflicts in Georgia. Russia is still very busy in Ukraine, and Russia’s economy still is not in a shape to support any further sanctions.


Turkey’s internal political stability has a great importance for South Caucasus. It impacts region in several ways. Strong Turkey is the only real-time counter power to Russia; pluralist, corruption-free Turkey is the standard for its neighbors; stable, militarily strong Turkey is the fence against the chaos in Arabic south and so on. Current developments in Turkey itself and other ongoing challenges involving Turkey create the destabilizing risks. Turkey is already strong enough to mitigate those risks, however there are some uncertainties. Even in case of weakening Turkish factor, Georgia is not the one who is going to suffer immediate consequences and nothing suggests any tectonic changes to happen in 2017.


EU is becoming a vital partner for Georgia. 2014 marked as a year of significant breakthrough in relations with the EU, Georgia signed the comprehensive association agreement – DCFTA with the EU which enabled the free trade arrangement and 2017 already became a historical data for Georgians – from current week Georgian passport holders can travel to EU countries without Visa. For sure further widening of the political relations will positively impact Georgia’s development.


Another factor of Georgia’s geopolitical stability is USA commitment to the region. America’s commitments in general is the hottest discussion topic worldwide and probably I can’t add much. However, two things are clear, there will be no immediate foreign policy drift concerning the Black Sea, Caucasian region and another less optimistic part is that chances are too small for the USA to show any bigger appetite towards our region since there attention will be caught elsewhere.


Foreign Economic Relations


EU, Turkey, Azerbaijan, Russia, and Gulf countries economic conditions are important for Georgian economy due to its ties with them through: Export, Investment, Tourism and Remittances.


Source: Geostat data, www.geostat.ge


Georgian export is quite diversified however EU, Azerbaijan, Turkey and Russia are the largest destination markets. Until 2017 Georgian foreign trade relations were strained because of ongoing economic challenges in Azerbaijan and Russia and at lesser level in Turkey and some EU countries. Since 2016 the overall economic conditions started improving especially due to the stabilizing oil prices which is the key factor of Russia’s and Azerbaijan’s economic stability. Trend is continuing in 2017 too and Georgia’s major export destinations are getting into better shape apart from Turkey. This creates positive implications for Georgian export together with the widening export geography with its latest significant addition – China.

Source: Geostat data, www.geostat.ge


Foreign Direct Investment is another major source of currency inflow into the Georgian economy. Over the years, EU has been the largest contributor to the foreign direct investments flow, with very significant input from Azerbaijan, Russia, China, Turkey, USA and UAE.


Over the recent years, the FDI flows have been destabilizing primarily because of economic challenges in investor countries. Improving economic conditions in oil reach countries may trigger new waives of FDI.

Source: Geostat data, www.geostat.ge


China has joined the first-tier investors group for Georgia recently and its investments are on the rise at a high speed. Chinese companies are investing literally in every sector including the banking, manufacturing and trade & logistics. Georgia is the part of the new Chinese Government program ‘One Belt, One Road’. Under this program, China is going to accelerate its investment into the Silk Road Countries and Georgian logistical infrastructure falls into the targeted sectors.


Tourism is among the fastest developing industries in Georgia. Its role has turned into ‘nice-to-have’ to ‘core’ for Georgian economy. Most of the visitors are generated from the neighboring countries: Azerbaijan, Armenia, Turkey, Russia, and Ukraine. Inflow is increasing every year driven by the improving infrastructure. Urban, Sun & Sea, Spa, Winter attractions are increasing in numbers fueled by both public investments into civil infrastructure and growing private investments into the hospitality sector.

Source: Georgian National Tourism Administration, http://gnta.ge/


Remittances are important for Georgia too. Here as well, Russia, EU, and Turkey are leading together with the USA. Traditionally Russia is the biggest donor, its share into the remittances varies from circa 35 to 50 per cent, while another half comes from EU, USA and Turkey. Current potential in remittances is big, theoretically it can increase twice from 2016 level just to reach pre-oil price crisis level. Developments in Russia and EU suggests, from 2017 remittances will start moving back to its height.


Internal Factors Overview


Other than external factors, internal factors remain largely unchanged or show some improvements. Politically Georgia remains stable, majority party won strong support in 2016 general elections and nothing hints the public mood can change in short-term.


Regulatory Environment


Georgia is having the best business environment compare to any CIS country and overall is ranked far better than anyone in Eastern Europe and Central Asia under the:

  • WB’s Doing Business 2017, (16th)

  • Heritage’s Business Freedom 2017, (13th, mostly free)

  • TI’ Corruption Perception 2016, (44th)

  • PWC’s Paying Taxes 2017, (22nd).


  • Country fiscal and monetary position is good.

  • Banking sector is healthy, with capital adequacy ratio circa 15 per cent and NPL ratio of 3.5 per cent. Inflation is low.

  • National currency has stabilized after 2016 regional turmoil.

  • Foreign debt continues picking up, however foreign public debt stays under moderate level 45 per cent to GDP with circa 6 per cent annual service to total Government revenues.

  • Budget deficit is on decline after 2016 higher spending staying around 4 per cent in 2017 with further lowering trend.

  • Major weakness of Georgian economy is still there, which is its current account deficit.

Large scale projects

  • Other internal drivers for growth are large scale projects under implementation. Government continues its investments into the civil infrastructure, East-West highway is on the last phase of rehabilitation, once its fully completed, it will boost country’s logistical abilities. 

  • Baku-Tbilisi-Kars railway almost finished and ready to be launched in a few weeks/months’ time. It is a unique project which will connect the Caspian Basin to the European Union and Mediterranean through railway adding further boost to the Georgian trade & logistics sector. 

  • There is another large-scale investment project which has already begun – Anaklia sea port construction. It aims the development of new sea port on the old Silk Road with an ability to accept very large vessels. 

  • Hydro Power Plants remain lucrative for the large-scale investments. Just recently the newest construction of Nenskra HPP has launched with estimated budget of USD 1 billion.


Overall Georgia’s opportunities for 2017 are better compare to the recent years, driven by the improving economic conditions of Russia and Azerbaijan; stabilizing oil prices and increasing economic ties with the EU and China. Thus, it is highly realistic to achieve the economic growth around 4 per cent. However, uncertainties remain and the positions of major economic partners are still fragile.


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