Not all Song and Dance: Georgia as a New Economic Center?

By: Steven Luber

Introduction

On 28 November 2018, Salome Zurabishvili was elected to the Presidency of Georgia. She won by an approximate majority of 60% and became the first elected female president in the Caucasus’s history and the first president to govern under Georgia’s new constitution. It was a dramatic conclusion to an election cycle characterized by personal attacks, corruption allegations, threats of violence, and civil unrest. Though she officially ran as an independent candidate, French-born Zurabishvili was endorsed and heavily supported by the ruling Georgian Dream coalition and its billionaire leader, Bidzina Ivanishvili.  

Shortly after that, Georgian Prime Minister Mamuka Bakhtadze represented the country at the 2019 World Economic Forum. Though overshadowed by conversations about global stability, climate change, trade tensions, and other topics, Tbilisi’s role in Davos was quite interesting. During the Eurasia in a New Global Context panel discussion, PM Bakhtadze was able to elaborate on his long-stated strategy to position Georgia as a bridge connecting Europe and Asia and received more media attention than in previous years.

Team Zurabishvili/Bakhtadze may now have the momentum to bring about tangible results, especially in light of the World Bank’s recent rating of Georgia as the most business-friendly country in the region. However, struggles between internal factions threaten to undermine the country’s most significant infrastructure projects and confidence in democratic institutions as a whole. Georgia’s near-term future will be determined by how the country’s new leadership handles these challenges.  

The Return of Geography

Bakhtadze’s strategy, as previously covered by the Bear Market Brief, is to capitalize on Georgia’s geographic position and positive multilateral diplomatic standing to turn the country into one of Eurasia’s main economic centers. As quoted by interpressnews.ge, PM Bakhtadze explained that “Georgia is a gateway for eight land-locked countries, the market of these countries is around 100 million people which is the fastest-growing consumer market in the world…Therefore the strategy of my government is to make Georgia a regional hub for business, trade, finance, tourism, logistics and education.”

He further stated, “our historical roots are European and our outlook is European. But at the same time, Georgia is located at a crossroads of civilizations. We would like to facilitate trade between Asia and Europe, between China and the European Union. Georgia is the only country in the region that has a free trade agreement with both the EU and China.” Indeed, Georgia is already filling the role of an economic middle-man. The country’s largest trading partners are states in its immediate neighborhood. Russia, Azerbaijan, Turkey, and China are top destinations for exports and primary origin countries for imports.

The role of a trade conduit would help Georgia to diversify its traditional economic strengthsnamely wine and tourismwhich also show signs of steady growth. As reported by Georgia Today, the growing number of international visitors was a bright spot amid slowing overall GDP growth last year. This growth may be driven in part by an increasing attraction to Georgian wine in Western and other non-traditional markets, but also by very generous visa-free entry requirements.  

Looking Forward

As its top officials have made clear, Tbilisi’s foreign policy objective remains Euro-Atlantic integration, a fact which is unlikely to change. In contrast to the now-opposition United National Movement (UNM) however, the Georgian Dream attempts to pursue this goal more pragmatically, reversing the zero-sum strategy which the UNM sometimes seemed to pursue.

However, this multi-faceted approach should not be interpreted as Tbilisi softening its diplomatic positions. PM Bakhtadze reminded Davos attendees that Russia is still occupying around twenty percent of Georgia’s territory and that this situation is unacceptable. He also re-emphasized his country’s intent to become a member of NATO, though adding that “we don’t have illusions that this process can happen overnight.”

Russian economy-watchers should not overlook the fact that Georgia’s northern neighbor is already the largest destination for Georgian exports. Given that trade has already reached this level without normalized bilateral relations, Russia could stand to benefit should relations continue to thaw. Pending Russo-Georgian gas transit deals, which would run through Abkhazia and South Ossetia, would be a strong indication of such a thaw should they materialize. For now, Russia-watchers should remember to keep an occasional eye on the economic potential in the South Caucasus.

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