Country Risk Profile - Georgia
Overview
A country of approximately 3.7 million people, Georgia is situated in a strategically important location by the Black Sea, bordering Russia, Azerbaijan, Armenia, and Turkey. Annexed by Russia in the 19th century, and subsequently becoming part of the Soviet Union, Georgia gained its independence with the latter’s collapse in 1991. A legacy of this arguably incomplete struggle for independence can be seen in the existence of two separatist breakaway regions, Abkhazia and South Ossetia (Tskhinvali). After a war with Russia in 2008, in which the two regions were supported by the latter, Georgia ceased diplomatic relations with its strategically important neighbour, and security concerns continue to feature at the forefront of Georgia’s foreign policy.
Georgia’s GDP currently stands at $24.6 billion, with annual growth around 10% (2022). The country’s economy is mostly reliant on agricultural output, mineral trade, tourism, and foreign money inflows, mainly in the form of remittances, which accounted for over 15% of its GDP in 2022.
The country’s political, economic and security trajectories reflect the broader trends of the Caucasus region, although Georgia has long been considered a model example among its neighbours.
Political risk
Georgia holds regular competitive elections and was showing a promising democratic trajectory with a change in power between 2012 and 2013. Nevertheless, it is classified as ‘partly free’ by Freedom House, with a score of 58/100. Although freedom of speech is protected in Georgia, the media landscape is increasingly polarised, and media sources critical of the government face growing pressures, including denied access. These developments were underway even before the attempted passage of a bill ‘on transparency of foreign influence’ in the media and operations of foreign civil society organisations (CSOs) and nongovernmental organisations (NGOs), akin to Russia’s foreign agent law, in March this year, and have shown no signs of abating since. At the same time, CSOs and NGOs have remained active in governmental activity and monitoring.
With regards to political instability, Georgia can currently be classed in the high-risk category. Previously, the country had shown a promising trend towards the strengthening of human rights, and the rule of law, becoming a leading example in the region. In the past decade, however, successive government policies, increasing polarisation, oligarchic influence and instability contributed to significant democratic backsliding. The country faced a political crisis in 2019, when a Russian deputy, accused of fighting in Russia’s war against Georgia in 2008, addressed an assembly of MPs in Tbilisi, resulting in a popular attempt to storm the parliament. Subsequently, following the 2020 parliamentary election, the main opposition party, United National Movement (UNM), rejected the electoral outcome, calling it fraudulent. When the party representatives then refused to take their seats in parliament, plans emerged of an allegedly politically motivated arrest of UNM’s leader by the incumbent Minister of Defence Giorgi Gahkaria (Georgian Dream Party), prompting widespread protests in February 2021.
Moreover, in the present geopolitical environment, Georgia finds itself treading an unsteady path between a long-standing pro-Western orientation, and greater Russian influence in light of the latter’s invasion of Ukraine in February 2022.
Corruption
Once a champion of anti-corruption in the region, Georgia’s Corruption Perceptions Index (CPI) has been stagnating since at least 2012. Nevertheless, Georgia currently ranks 41st in the world, and continues its now-modest lead in the region. Abuses of power and kleptocratic tendencies of elite political circles have been the chief contributors to this trend. This is supported by public opinion, which considers the country’s fight against corruption to be regressing.
One of the most significant consequences for Georgia is its long-delayed access to candidate status for membership in the European Union (EU), especially since the latter flagged corruption as one of the most pressing reasons for continuing to withhold such status in 2022.
Polarisation
Since the rise to power of the Georgian Dream Party in 2012, founded by the influential businessman Bidzina Ivanishvili, a constantly developing animosity with UNM (in power before 2012), has driven the country down the route of polarisation. The chief point of difference lies in the latter’s routine accusations of the former’s pro-Russian stance. At the same time, the former opposition party leader and president Mikheil Saakashvili, and his previous associations with Ukraine are considered among the main reasons for the current government’s continuously ambivalent attitude towards Ukraine.
In line with these developments, 61% of the population considered Georgia to be heading in the wrong direction (March 2022), up from 53%, before the political crisis in February 2021, and showing a significant increase since 2014, when the figure stood at 33%. The recent political standoff between the governing party and the opposition, continuing on from protests in 2019, further contributed to stagnation on issues of judicial reform and human rights.
Economic risk
The Georgian economy is small but relatively open, taking advantage of its strategic position between Russia and Central Asia. As a potential candidate for EU membership status, it also has extensive trade agreements with the EU, alongside other important players, including China. The country is rich in mineral resources and has very good potential for development in the hydroelectric sector.
At the same time, the economy is not very diversified, and continues to be dependent on agriculture, where productivity is quite low, and the fluctuating market of tourism (27% of GDP in 2019), which poses moderate risk for stability and resilience. According to domestic polls (2022), almost 60% of the population considers unemployment to be the most important problem the country faces, with cost of living not far behind at 45%.
Alongside structural issues, Georgia’s geostrategic location and small economy also mean it can be sensitive to regional conditions. Yet despite the recent shocks of the COVID-19 pandemic and regional impact of the war in Ukraine, Georgia’s economy grew by just over 10% in 2022, and is projected by the International Monetary Fund (IMF) to grow by 5% in real terms in 2023. This is largely thanks to the rebound experienced in the tourism sector, as well as surge in money transfer inflows from Russia. This may, however, be impacted by further sanctions linked to Russia’s war against Ukraine.
Business climate
The World Bank considered Georgia an attractive business environment in 2021, citing a ‘sound macroeconomic framework’ and ‘robust public financial management’. The International Trade Administration similarly considers Georgia’s investment climate sound, and compares the country favourably to others in the region. Certain political and structural (mainly judicial) aspects pose moderate risk for businesses, but Georgia is overall considered to have relatively low risk business prospects.
Security risk
Due to its location, Georgia is vulnerable to the fluctuating security environment of the region, as well as geopolitical influence. This has especially been the case with the Ukraine war, but more recently as well, during the conflict and subsequent humanitarian crisis in Nagorno-Karabakh. Alongside these regional challenges, the Georgian State Security Service identified the continuous occupation of its breakaway territories as one of the chief ‘existential threats’ to the country, and 90% of the population consider Russia to pose the greatest political threat.
Breakaway territories
The National Security Concept of Georgia identifies national unity and territorial integrity among the primary national interests of the country. This is in no small part because of the long-term dispute around and separatist occupation of Abkhazia and South Ossetia (Tskhinvali region). Separatist conflicts in the aftermath of Georgian independence led to de facto secession of the two regions, which have since established their own authority and governance structures. Russia’s backing of the two separatist regions led to a conflict between the two countries in 2008, ending in the consolidation of the de facto rule and establishing continuous support of the two regions by Russia.
Relations between the two breakaway territories and Georgia have deteriorated since, and separatist rhetoric tended to intensify during Russia’s incursions into Ukraine, both in 2014, and since 2022. Despite Russian claims to the contrary, the Georgian government believes that the former region of South Ossetia will try to be integrated into Russia, and the de facto government of the region has made no secret of its own desire for such integration. Russia for its part does not seem to share this view to the same extent, and recently welcomed the region’s decision to drop a referendum vote on integration. Nevertheless, Georgia’s security situation remains uncertain, and relations with the two breakaway territories are at some of their lowest levels.
Domestic security
The Global Organised Crime Index considers Georgia to have a low level of organised crime, although certain vulnerabilities with human and drug trafficking are also highlighted. Overall, the country’s criminality score has increased slightly in the past two years, decreasing the level of resilience, but its regional ranking (43/46 in Asia) provides a clearer picture as to its domestic security. Arms trafficking has also increased slightly given the recent regional conflicts and tensions, sparking some fear of proliferation. As previously stated, social unrest is also a possibility, given the polarised political climate.
Geopolitical risk
Georgia has long been striving for candidate status, and ultimately membership of the EU, which is supported by over 80% of the population. In June 2022 the government failed to convince the supranational institution of its commitment, only meeting three of the twelve necessary priorities, while Ukraine and Moldova gained candidate status. The EU continues to cooperate closely with Georgia through the European Neighbourhood Policy and the Eastern Partnership, as well as by providing grant assistance for improvements in the quality of life.
Nevertheless, the EU High Representative for Foreign Affairs recently expressed concern over Georgia’s geopolitical pivot towards Russia. Despite supporting the EU stance on the war in Ukraine, and working to prevent sanction circumvention, Georgia has not joined the sanctions regime, and recently resumed air travel with Russia, making it a valuable access point. Moving forward, it will thus be crucial for Georgia to straighten its geopolitical priorities in light of its Western aspirations and find a suitable balance between them and its relations with Russia.
Conclusion and forecast
Over the following six months, Georgia’s politics, economy, and security may be expected to encounter further challenges as the country struggles through geostrategic balancing between its pro-Western interests and Russia’s regional influence.
The most recent EU sanctions package against Russia gives Georgia an instrumental role to play in the prevention of circumvention, and enforcement will no doubt be crucial for future candidate status evaluation. On the domestic scene, an approaching electoral season, with the general election scheduled in November 2024, is further likely to contribute to slight destabilisation of the political scene, especially in light of recent trends of polarisation.
Economically, Georgia is likely to continue on its upward path since the losses of the COVID-19 pandemic, especially as vital sectors, such as tourism, rebound after recent internal and external shocks. At the same time, overall growth is expected to slow down due to lower rate of money transfer inflows. Inflation has decreased over the course of the year, but frequent geopolitical changes and regional domestic policies will likely continue to have a significant impact.
At the same time, Georgia will continue to face indirect security consequences of the most recent conflict and destabilisation in the region, in Nagorno-Karabakh, especially since ethnic Azeri and Armenian populations are among the largest minority groups in Georgia. Depending on the evolving conflict in Ukraine, further security priorities, including a rise in separatist demands of the two breakaway regions (Tskhinvali in particular) may also be expected to affect the country’s foreign and domestic policies.