After Russia’s invasion of Ukraine, countries and organisations across the world imposed unprecedented and stringent sanctions on Russia. It is impossible to say what practical impact the sanctions will have and, therefore, what the scale, duration and characteristic of the economic/financial consequences will be not only for Russia and Ukraine but their partner countries and the global economy in general. Naturally, in light of ongoing hostilities, Ukraine has started to face multifaceted crisis. It is a matter of huge interest as to how this conflict can affect the Georgian economy. This article offers a brief overview of Ukraine and Russia’s shares in the foreign economic sectors which hold importance for Georgia.

The shares of both Russia and Ukraine in foreign direct investments is relatively low, although a decline in remittances and hindrances in foreign trade may become a big challenge for Georgia. In the past few years, Russia has become one of Georgia’s top partners in terms of foreign trade as well remittances and tourism which poses a significant problem in terms of economic security. One of the major sources of foreign currency inflows to Georgia is remittances. In the last decade, the total sum of remittances to Georgia from abroad nearly equals the one-year gross domestic product. Remittances from Ukraine increased during the pandemic and reached USD 90 million which constitutes 3.9% of the total remittances. In this regard, dependence on Ukraine is insubstantial. Remittances from Russia amounted to USD 411 million which is 17% of the total remittances. As shown by Table 1, the share of remittances from Russia to the total remittances has been declining in time, although dependence is still strong and Russia is the biggest source of remittances to Georgia and this remains challenging for the Georgian economy.

Table 1: Dynamic of Remittances from Russia and Ukraine, USD Million

Source: National Bank of Georgia

In terms of foreign direct investments, excluding some exception in 2012-2021, the contribution of Russia and Ukraine in foreign direct investments was relatively small. On the other hand, the total FDI volume sharply dropped during the pandemic. However, the share of Russian investments increased slightly in light of decreased total investments during the pandemic. Of note is that, about 38% of foreign investment in Georgia comes from offshore and in some cases, it may even be related to money of Russian origin.

Table 2: Foreign Direct Investments from Ukraine and Russia, USD Million

Source: National Statistics Office of Georgia

In 2021, the total value of goods imported from Russia amounted to GEL 1 billion which constitutes 10% of Georgia’s total imports. In the same period, import from Ukraine was USD 452 million which makes up 4.5% of total imports. In terms of the ratio, the situation did not change significantly as compared to the pre-pandemic period.

Table 3: Imports from Russia and Ukraine, USD Million

Source: National Statistics Office of Georgia

As for exports, in 2021, the value of goods exported to Russia amounted to USD 610 million which constituted 14.4% of total exports. In the same period, exports to Ukraine reached USD 307 million accounting for 7.2% of the total Georgian exports. Therefore, Due to the crisis, about 20% of exports and about 14% of imports remain at risk.

Table 4: Exports to Russia and Ukraine USD Million

Source: National Statistics Office of Georgia

Of note is that in terms of exports, it is more important to analyse the export dynamic without re-export because the export of local goods is of vital economic importance for a country. As opposed to Russia’s share in Georgia’s total exports, its share in the export of local goods is higher whilst Ukraine’s share in the export of local goods is lower as compared to its share in the total exports. In 2021, export (excluding re-export) to Russia was USD 555 million which accounted for 17.7% whilst export to Ukraine was USD 182 million, constituting 5.8% of export (excluding re-export).

Table 5: Export of Local Produce, USD Million

Source: National Statistics Office of Georgia

In terms of foreign trade, of interest is the trade dynamic of some products which have a higher share and strategic importance as compared to general trade. For instance, there were 62,115,759 bottles of wine (USD 131 million) exported to the Russian market in 2021 which accounts for 58% of total exports. In 2021, the value of exported spirits from Georgia was USD 156 million. Of that amount, Russia and Ukraine account for 26.9% and 27.6% of the total exports, respectively. In 2021, the total value of mineral and drinking water exported from Georgia was USD 142 million with Russia and Ukraine accounting for 42.9% and 18.5% of the total exports, respectively. In addition, the Russian market accounts for over 50% (in most cases over 70-95%) of fruits and vegetables exported from Georgia. The most concerning situation is in regard to wheat imports. The statistical data from the last years illustrate that nearly 90% of imported wheat to Georgia is of Russian origin. The coronavirus pandemic vividly demonstrated the necessity to have diversified wheat imports. It is vital for a country’s food security to have diversified wheat imports in order to avoid a deficit in wheat supply and be less dependent on an unstable trade partner – Russia, since it has been proven multiple times that Moscow often uses trade relations with Georgia for political purposes. In light of sanctions against Russia, there is a risk of a wheat deficit both in Georgia and across the world which will pose significant problems in the future.