Importing Autocracy: a Dangerous Moment for Georgia
Boris Grozovsky (email@example.com), columnist, the author of EventsAndTexts telegram channel, moderator of conversations on the "About the Country and the World" channel
Please see the attached file below for the Russian language version of this article.
Russia's war against Ukraine has exacerbated Georgia's domestic and foreign policy problems. In an attempt to retain power, the ruling party and its creator, Boris Ivanishvili, are accelerating the transformation of the Georgian political system into an autocratic one. This is helping to deepen economic and political ties with Russia and - against the wishes of Georgian citizens - to freeze integration with the EU and NATO. The Kremlin is increasing its pressure on Georgia, and economic dependence on Russia and Russia's open military threat limit Georgia's freedom of action. Russia is quite capable of "punishing" Georgia for its independent policy and Euro-Atlantic choice for the third time in the post-Soviet years.
Georgian democracy is now in an extremely dangerous phase. Society is polarized, and democratic institutions are under attack. At the same time, the war significantly accelerated the growth of the Georgian economy. Economic dependence on Russia, a military threat from Russia and the desire of Boris Ivanishvili and the Georgian Dream to remain in power are pushing Georgia towards normalizing relations with Russia. This might rid Georgia of the military threat, but it would postpone EU and NATO accession indefinitely, deprive the country of the ability to pursue an independent policy and turn it into an autocracy.
Russia's foreign policy goals in the "near abroad
Georgia's Euro-Atlantic choice
2022: Drift towards Russia
State versus civil society and opposition
"Too many Russians”
Russian culture as a political tool
Economy: capital inflow and inflation
The dangerous economic dependency
Russia's foreign policy objectives in the "Near Abroad”
For at least the last 15 years, one of the main objectives of Russian foreign policy has been to get the world's centers of power (the US and Europe) to recognize that the countries surrounding Russia (“Near Abroad States”) are its sphere of interest and influence. Russian politicians (not only Putin - Primakov clearly formulated this doctrine) believe that these countries should cooperate with Russia and become a "buffer zone" protecting it from external threats. The Putin regime regards all Euro-Atlantic structures as hostile to itself.
As a "carrot" for this work, Russia provides such countries with cheap energy resources and loans, gives them military support, finances pro-Russian politicians, and effectively "buys" the elites of friendly countries. Thanks to Russian support, authoritarians from these countries are able to stay in power (sometimes in a hopeless situation of confrontation with their own people, like Lukashenko) and multiply their property. Sometimes this policy fails (Yanukovych).
Russia is trying to build clientelistic relations with the countries around it, and this is much easier to do with authoritarian regimes than with democracies. This is why Putin's regime reacts so nervously to the "orange revolutions" (Ukraine, Georgia, Belarus) and helps authoritarian leaders to stay in power. The Kremlin perceives attempts at democratization in a country with close ties as a threat to Russia's national security imposed by the West.
In September 2022, Russia adopted the "Concept of Humanitarian Policy". This document confirms Russia's commitment to state-level imperialism and deliberately seeks to limit the ability of other countries to pursue independent policies. The concept sees Russian culture as a tool for influencing the policies of other countries. Protecting the rights and interests of Russian speakers in other countries is its key element. Russia supports them to preserve their Russian identity and build influence channel.
Georgia's Euro-Atlantic Choice
Georgia's course towards integration into European structures and NATO was made very clear at the turn of the 1990s under the government of Eduard Shevardnadze. At the same time, Shevardnadze was a shrewd politician and diplomat who tried not to spoil relations with Russia. Georgia's Euro-Atlantic vector became more firmly established after the Rose Revolution (2003), which Russia perceived as hostile Western interference aimed at cutting Georgia off from Russia. In 2006, Georgia became a NATO partner but, like Ukraine, received no guarantees from NATO.
By 2006, relations between Georgia and Russia had become as hostile as possible. Russia banned the import of Georgian wine and Borjomi, and after expelling Russian spies from Georgia, it completely cut off transport and postal links with Georgia and raised gas prices, reducing the time Georgian citizens could spend in Russia. Russia's support for the rebel republics led to the 2008 war, in which Georgia lost the rest of South Ossetia and Abkhazia. In contrast to the events of 1991-93, when Abkhazia seceded from Georgia with Russian support, the Russian army was openly involved in the war. In 2008, Russia recognized the independence of Abkhazia and South Ossetia. At the same time, Russian propaganda claimed Russia had entered the conflict with Georgia because of its "anti-Russian policy".
Since then, Russian troops have been stationed demonstratively close to the Georgian border in both Abkhazia and South Ossetia, and their numbers have increased. Russia has modernized the armed forces in both unrecognised republics, brought the command system and technological solutions into line with its own, and carried out joint exercises. Georgia lost 20% of its territory in the two wars. Russia is integrating the annexed territories by co-opting the elites through finances, passportization of the population, russification and propaganda. This policy aims to ensure that the societies of Abkhazia and South Ossetia have nothing in common with Georgia.
After the war, diplomatic, political and economic relations between Georgia and Russia were frozen. However, in 2010, Georgia reopened the border crossing at Upper Lars, and in 2011 it introduced visa-free travel for Russians to the republic in a bid to boost tourism and convince Russians that Georgia does not have a hostile relationship with them, only with Putin's regime.
Georgia paid for its European choice with two wars and a loss of territory. Nevertheless, since 2012, when Boris Ivanishvili's Georgian Dream party came to power, relations between Russia and Georgia have warmed considerably. Full normalization is impossible because of unresolved territorial issues, but the former hostility has disappeared.
Almost 15 years after the war, Georgia's ruling party is much more pro-Russian and anti-European than society. This became clear after the protests in the summer of 2019 when Russian MP Sergei Gavrilov sat in the Georgian parliament speaker's chair in a gesture of political dominance. The government tried to stop the protests, but the public was outraged. In response to the rallies, which Russia accused the United States of organizing, Putin cancelled direct flights between Russia and Georgia.
2022: drifting towards Russia
In 2022, Russia's aggression against Ukraine put Russia's neighbours, including Georgia, in a challenging position. They had to take steps to mitigate the Russian threat to their security. At the same time, they had to condemn Russia's actions to avoid becoming pariahs in the world community like Russia. Unlike the Baltic states, the other post-Soviet states had no guarantees that anyone would protect them from Russian aggression.
Georgia and Moldova, which had already faced Russian aggression and had unresolved territorial disputes with Russia, found themselves in a complicated situation. Countries that were economically dependent on Russia had to consider Russia's readiness to respond to any complication in relations with trade and energy wars.
The war made the EU more willing to open its doors to Ukraine, Moldova and Georgia. However, Georgia did not take advantage of this and did not become a candidate for EU membership. This was a consequence of the Georgian Dream’s dual policy. In its words, it confirms the European choice. In reality, it is gradually moving closer to Russia, claiming that US and EU officials want Georgia to enter the war. This thesis is untrue, but it has the sympathy of many Georgian citizens.
While emphasizing the importance of normalizing relations with Russia, the Georgian authorities in recent years have sabotaged the reforms that would bring Georgia into the EU. This has led to cooling Georgia's relations with the EU and the US. Georgia has shifted from a pro-Western foreign policy to a "balanced" approach. The Georgian Dream could rectify the situation after the outbreak of the war. The reform program needed to join the EU clashed with the Georgian Dream's goal of staying in power, and the party predictably chose the second option over accelerating EU accession.
The Georgian Dream has deliberately taken steps to degrade the quality of the country's political institutions, which has led to a crisis in its relations with Europe. It declares that the EU and the USA are acting against the interests of Georgia. In fact, they are only acting against the Georgian Dream's own interest in maintaining power. In 2021, the government rejected the EU loan for judiciary reform and put the judicial system under control. As a result, unlike Ukraine and Moldova, Georgia can spend many years on the European waiting list.
Having frozen Georgia's European integration process, the Georgian Dream is trying to convince the population that this is the price for peaceful coexistence with Russia and economic growth. The victims of this approach have been judicial reform and minority rights. Administrative control over elections has also been strengthened. Visa-free travel to Europe may have demotivated the Georgian authorities: they now have no incentive to pursue EU membership.
The Georgian government's dual policy in 2022 was also manifested in several friendly gestures towards Russia. The government did not hand over a charter of Georgian volunteers to Kyiv, did not join the sanctions, and refrained from condemning Russia at the UN. There are suspicions that Georgia is supplying sub-sanctioned goods to Russia (officials deny this). Between February and July, the leader of Georgian Dream, Irakli Kobakhidze, made nine critical remarks about Russia, 57 about the West and 26 about Ukraine. The Georgian Dream is unlikely to replace its alliance with the West with an alliance with Russia. Nevertheless, it makes many tactical decisions based on cynical pragmatism, which is very much to Moscow's advantage.
The main achievement of 2022, as interpreted by propagandists loyal to the authorities, is that Georgia has not been dragged into war. The authorities intimidated the population by alerting them that becoming integrated with Euro-Atlantic structures could potentially result in a new conflict with Russia. The efforts to reclaim Abkhazia and South Ossetia would expedite this process even further, and Russia is eager to take advantage of these anxieties.
"Look at Ukraine - do you want to go to war with Russia like they did?" the Georgian Dream asks voters. It systematically promotes the public narrative that the West wants Georgia to go to war with Russia. There are not too many people in Georgia who wants to go to war. Fear of war slightly reduced support for Georgia joining NATO in early 2022 (from 77% to 71%). This is not surprising, as Russia and the unrecognized republics see any joint exercises between Georgia and NATO as a threat to them.
Russia uses unresolved conflicts in Abkhazia and South Ossetia to influence Georgian politics. Russia pursued a similar strategy in Moldova and, between 2014-2021, in Donbas. The unresolved conflicts forced the post-Soviet countries to behave conveniently for Russia to gain protection (Armenia) or not to spoil relations with Russia (Georgia, Moldova and Ukraine). Therefore, Russia's strategy has been to create and maintain conflicts in the post-Soviet countries.
Russia's creation of a controlled regional escalation has prevented these countries from integrating into Euro-Atlantic structures. Russian dissatisfaction is linked to a new war. US and EU policy towards the post-Soviet countries was unclear in this respect. The small countries could not aggravate relations with Russia without guarantees of protection from major players. These factors allowed the Georgian Dream to strengthen economic cooperation with Russia and to copy features of autocracy into the Georgian political system from Russia. This makes it easier for the party to stay in power.
At the turn of the 2010s and 2020s, Georgia tried to pursue a balanced foreign policy. Many in Georgia believe that getting too close to Russia to avoid regional conflict could turn the West against it. Leaning too close to the West risks a Russian-inspired economic crisis and war. From this point of view, accelerated accession to the EU and NATO could lead Georgia into a war with Russia before it joins the EU and NATO. Conversely, Georgia could kiss the EU and NATO goodbye if it starts doing Russia's bidding.
There is a narrow range of possibilities between the two extremes within which Georgia can operate. Recently, however, Georgia has been leaning more towards Russia. Georgian Dream's desire to retain power and increasing pressure from Russia have facilitated this.
Such an approach contradicts voters' sentiments - even those who now support the Georgian Dream. 76% of respondents in Georgia believe that Russian aggression against Georgia is continuing. 89% believe that Russia is the main threat to Georgia. The majority of respondents named the EU and the United States as the most important partners. By early 2023, support for joining the EU (from 85% to 81%) and NATO (from 78% to 73%) had declined slightly but remained very high.
The rapprochement with Russia in 2022 is primarily due to increased pressure from the Kremlin to limit Georgia's ability to pursue an independent policy. Russia is particularly jealous of any EU or US projects in the country, especially those aimed at accelerating Georgia's integration into the EU and NATO. Under Russia's strong influence, the construction of the deep-water port of Anaklia was halted. The Russian Foreign Ministry wanted Georgia to guarantee that the port would not receive NATO ships (which would increase Georgia's strategic security).
The war has deteriorated relations between Georgia and Ukraine as Georgia, out of concern for not irritating Russia, has solely offered humanitarian assistance to Ukraine. At the same time, Georgia has not frozen cooperation with NATO, receives aid from the US, participates in joint exercises and buys NATO-standard weapons from Turkey. The deterioration in relations with Ukraine is mainly due to the links between the Ukrainian officials and the Georgian opposition ('the friend of my enemy is my enemy', as the Georgian Dream says). A Ukrainian victory in the war would strengthen the Georgian opposition. Periodically, Ukrainian officials make unsubstantiated allegations of collaboration between the Georgian government and Russia, aiming to support the Georgian opposition.
To advance Euro-Atlantic integration, which has stalled in recent years, Georgia needs an agreement between the Georgian Dream, the opposition and civil society on a roadmap for action. In the current political environment, however, this seems unthinkable.
State versus civil society and opposition
Since the Georgian Dream came to power in 2012, there has been a steady increase in authoritarian tendencies in Georgia. Georgian Dream has succeeded in discrediting the political opposition, establishing control over all branches of government, the judiciary, much of the economy and the media, and slowing the pace of reforms. The rapprochement with Russia and the slowdown in Euro-Atlantic integration have become a means for the Georgian Dream to maintain and extend its power. Georgia's European future is becoming the victim of an inter-party political struggle.
In the 2010s and early 2020s, the Georgian political system gradually took on the characteristics of an autocracy. This process is far from complete and can be reversed. Nevertheless, as Georgia moves further away from democratic norms and institutions, Russia becomes an increasingly attractive partner for the Georgian Dream and its founder, while the US and Europe become less attractive.
By 2020, Georgia has already acquired the characteristics of a captured state. Bidzina Ivanishvili, whose wealth is equivalent to about 30% of Georgia's GDP, effectively controls the entire political system without holding any public office. The ruling elite's control of the courts has severely undermined confidence in the judicial system. Criminal cases are fabricated against politicians and opposition media (Nika Gvaramia, owner of the opposition TV-channel, in spring 2022 was sentenced to three and a half years in prison ), while Ivanishvili's proxies are protected from prosecution. Vote buying and manipulation of the vote count have compromised the electoral system.
The stakes are high: party leaders face political reprisals and personal vendettas if they lose the 2024 parliamentary elections. Elections in Georgia are a zero-sum game. Any change of power in post-Soviet Georgia has been accompanied by repression against the losing party.
A year before the elections, Georgian Dream prepared a draft law on foreign agents that outraged society. It was based on Russian law and had the same motives: to marginalize and remove from Georgian politics independent civic initiatives and media focused on Georgia's integration into Western institutions. This law is a logical continuation of the policy of the Georgian Dream, which is very unhappy with the statements of American and European public figures on Georgian politics.
Georgian NGOs receiving European and American funding have become prominent critics of Ivanishvili and his associates' attempts to turn the political system into an autocracy. Without NGOs and independent media, political opposition to the Ivanishvili regime will weaken. The whole of civil society - NGOs, athletes, winegrowers, business associations, academics, diplomats, artists, musicians - have literally spoken out against the bill. A generation of 20-25 year olds came out to protest against the law draft. They do not believe in the Georgian dream, and not all of them support Saakashvili. However, European integration secures their future - the chance to study, work and live in Europe.
In March 2023, robust public protests and a call from the US State Department forced Georgian Dream to postpone the bill, but attempts to pass it will undoubtedly continue. Low levels of trust in political parties, intense polarization and radicalization of political sentiments contribute to the intensification of attacks on democratic institutions in Georgia. Georgian Dream has stepped up its anti-Western rhetoric, calling its internal opponents "liberal fascists".
Even after parliament recalled the ill-fated law, Prime Minister Irakli Garibashvili, like Russian propagandist Vladimir Soloviev, accused the protesting youth of Satanism and MEPs and Ukraine of trying to drag Georgia into war. Garibashvili blames the 'Franklin Club' at the University of Georgia, which stands for liberal and democratic values, of organizing the riots.
The fate of Mikhail Saakashvili has become an important dividing line between the state and society. He is, in fact, dying in prison, and the authorities are refusing any attempt to alleviate his plight. Many in Georgia are convinced that Saakashvili was poisoned at Putin's behest. Leaders of various countries have repeatedly suggested that Saakashvili be released for treatment in Europe. According to rumours circulating in Georgian opposition, Bidzina Ivanishvili has replied: "If I let Saakashvili go, Putin will kill me". Saakashvili's death in prison could be a big problem for Ivanishvili: the attitude towards Bidzina in Georgia is going to deteriorate significantly.
Ivanishvili is unlikely to want to ruin relations with Europe completely, as Viktor Yanukovych did in 2013, and rush headlong into Russia's embrace. However, it is to his advantage to put relations with the West on hold because now Russia is not even satisfied with Georgia's slow rapprochement with Europe and the US.
If Ivanishvili is threatened with the loss of power, he will not be able to ask Europe or the US for help; in a critical situation, he will have to seek Russia's support. The oligarch's background, habits and connections are essential. Ivanishvili made his fortune in Russia in the 1990s and 2000s, and in the 2010s, he became the informal "boss of Georgia". Ivanishvili's strong business ties with Russia (in the 1990s, he was part of a close circle of oligarchs who helped elect Boris Yeltsin in 1996) have helped deepen economic and political cooperation between the countries.
In 2012, Ivanishvili came to power, promising to normalize relations with Russia. This promise is now almost fulfilled. But Russia will not allow Georgia to freely choose the Western path of development. While announcing his withdrawal from the Russian businesses, Ivanishvili probably could managed to keep it, as well as his relations with the Russian authorities. At least Russia has not criticized Ivanishvili's policy in Georgia. The oligarch’s real motives for entering politics remain unclear. In recent years, however, Georgia has slowly but consistently abandoned rapprochement with the EU and the US and returned to the Russian orbit.
Under Ivanishvili, the Alliance of Patriots party emerged in Georgia, funded directly by the Kremlin. It is trying to revise Georgia's strategic choice favouring the EU and NATO. According to billionaire Zaza Okuashvili, who has fallen out with Ivanishvili, the latter asked him to finance this party. In 2019, the Alliance of Patriots organized public protests against gay pride marches (Russian propaganda also fights against "non-traditional values" and Western influence in Georgia). Under Ivanishvili, Russian state-owned companies have bought Georgian assets. In 2014, for example, Rosneft bought 49% of Petrocas Energy, which owns an oil terminal in the port of Poti.
In the post-Soviet years, power in Georgia changed hands more through widespread unrest than through elections. Increasing authoritarian tendencies in recent years and a rapprochement with Russia may help the Georgian Dream stay in power. However, Russia has been wholly discredited in Georgia over the past 30 years. Georgia has paid for its European choice and will not allow it to be called into question. But it will not be easy.
The longer the Georgian Dream remains in power, the more people in Georgia will feel they owe their well-being to it and the more likely they will vote for it. Currently, the proportion of those who support Georgian Dream is about twice as high as those who vote for the main opposition party. An extended stay in power can increase the government's "clientele", as has gradually happened in Russia.
At present, the authorities and the opposition can only talk to each other in the language of threats and ultimatums: mutual distrust is exceptionally high. With an absolute majority in parliament, Georgian Dream does not need to reach a consensus with a divided opposition.
Many in Georgia doubt that power in Georgia now can change hands through elections. These doubts are justified. The government controls the elections. Fraud, voter manipulation and restrictions on the opposition are on the rise. Relations between the ruling elite and the opposition deteriorated when Georgian Dream broke an EU-brokered agreement with the opposition in 2021. Georgian Dream's unwillingness to save Mikhail Saakashvili has further aggravated the situation.
All this intensifies the political polarization within the elites, which is highly emotional in nature and makes the political system dysfunctional. Political parties are radically distanced from each other; their relations are highly toxic. In critical situations, they turn to confrontation. The ruling party does not allow competition for power; when it does, it takes destructive forms.
Political bickering reduces people's political participation: many voters are disillusioned with political parties. Emotional confrontation often replaces ideological one, and mutual insults and accusations replace meaningful political debate. In society, political confrontation is complemented by a conflict between defenders of traditional (patriarchal and religious) values and liberals who advocate social and cultural diversity. Sometimes this takes the form of a clash of identities, as was the case in Tbilisi in 2021 during the clashes over the Gay Pride parade.
"Too many Russians"
A large influx of Russians who left the country because of the war has made the situation in Georgia even more difficult. This runs counter to the trend of the Georgian Dream converging with the Putin regime. Through informal channels, Moscow has made it clear that it does not want Tbilisi to become the center of the Russian opposition. As a result, dozens of Russian opposition politicians and journalists have been denied entry to the country. Society has also turned against a large influx of emigrants.
During the war, Georgian society would have preferred to show solidarity with Ukrainians rather than with Russians fleeing Russia. However, the influx of Russians into Georgia is 4.5 times greater than the influx of Ukrainians.
The inflow of Russians has raised fears in Georgian society that Russia will eventually come to 'protect' them. This is especially true, as Russia has repeatedly done just that in Ukraine, Moldova and the Baltic states in the post-Soviet years. In 2008, protecting the rights of Russian speakers was Russia's casus belli in South Ossetia. This was preceded by the active distribution of Russian passports there. In 2016, this argument was used to justify Russia's involvement in the Donbas conflict, and in 2022 - as a pretext for a possible offensive in unrecognized Transnistria (Moldova).
During the 2019 protests, Russia cut air links with Georgia to protect Russians from the 'Russophobic campaign'. Moreover, in 2022, an adviser to the de facto president of South Ossetia said that the anti-war protests in Georgia were anti-Russian. Putin also justified his aggression against Ukraine by talking about Russophobia and Nazism in Ukraine.
Against this background, the almost 113 thousand Russians who stayed in Georgia in the first nine months of 2002 (the difference between the number of Russians who entered and those who left, according to the Ministry of Internal Affairs) is a tangible concern for Georgian society. Since the beginning of the war, Russians have registered 15.2 thousand companies and individual entrepreneurial accounts in Georgia. They have opened 110,000 bank accounts (of which more than 60,000 are active). Russians also account for 72% of the 8,464 people who received Georgian citizenship in 2018-2022.
The large number of Russians in Georgia may be a reason for Russia to 'protect' them, even if the Russians themselves do not need it. The influx of Russians is particularly worrying because many Georgian citizens are leaving for the EU. In the first third of 2022, this number increased by 2.8 times to 8100. Between 2012 and 2021, 73,600 more people left Georgia than arrived. At the same time, Russians, Ukrainians, Turks, Azerbaijanis and citizens of other countries are noticeable among those who come to Georgia for permanent residence. Their population in Georgia has increased by 125,000 in 10 years. The number of Georgian citizens who left Georgia in 2012-2021 was 198,600, more than those who returned.
There are fears that Russians will start dominating in Batumi, where many of the newcomers are staying. Some of the newcomers behave inappropriately and disrespectfully towards the host country. At the same time, Russians can stay in Georgia for one year without restrictions. Language and cultural requirements are applied in Georgia only to those who apply for longer-term residence permits.
The presence of Russians in Georgia has increased significantly since 2022, and many would like to stay in Georgia for a long time. This is dangerous for a country that has been the target of Russian aggression for many years. Especially when Russia interprets dissatisfaction with Russian policies as "Russophobia" and "anti-Russian sentiments of political or ideological origin" expressed by citizens of another country.
Russian Culture as a Political Tool
The large influx of Russians is a threat to Georgia's national security. Another reason is Russian culture’s "weaponization" by the Kremlin. It sees the Russian-speaking diaspora, both practically and theoretically (in its humanitarian policy concept), as a channel for popularising Russian culture, as an instrument of cultural and ideological influence. Unlike the Baltic countries, Georgia has no policy of assimilating Russian speakers. Through them, the Kremlin promotes ideological narratives based on disinformation and the discrediting of other countries and their institutions.
To achieve this, Russia actively manipulates historical memory. This is also "legitimised" by the concept of humanitarian policy, according to which Russia "opposes attempts by other countries to rewrite history". In practice, this means that Russia itself is falsifying history by justifying the crimes of the Soviet totalitarian regime. Elements of the information wars include the history of WWII and the subsequent occupation of Eastern Europe, other Russian wars, and common fragments of the imperial history of Russia and other countries.
It is essential for Georgia that Russia promotes a narrative that justifies Stalin's actions. In 2022, according to the Georgia Information Integrity Program, 34% of respondents believed that 'a patriotic Georgian should be proud that Stalin was a Georgian', while 52% believed that 'Stalin was a wise leader who led the USSR to strength and prosperity'. This is a dangerous trend because it makes Georgians more tolerant of authoritarian leadership.
If Stalin is still a hero, the new leaders do not have to follow democratic procedures. Feeling proude in Stalin ('the Georgian ruled the great empire') supports an anti-European narrative. The authorities encourage this by removing the history of modern Georgia from the school curriculum. They limit the study of history to the medieval period in order to promote isolationist sentiments.
Russian propaganda in Georgia suggests that Georgia should be with Russia (geography has decided this), that the Georgian and Russian peoples are friends and the Euro-Atlantic vector threatens them, that Russia will not allow Georgia to join the EU and NATO, that the West is not a reliable partner for Georgia.
Unlike European countries, the Georgian government is not engaged in countering Russian propaganda narratives. On the contrary, it supports and complements Russian propaganda because in this way it can also discredit the Georgian opposition, which is in favour of rapprochement with Europe.
The Economy: Capital inflows and inflation
Unlike the political system, the Georgian economy benefited from the war. Its development was fuelled by the influx of emigrants from Russia and their finances. Russia began to need Georgia as a broker for foreign trade under sanctions. New trade routes between China and Europe began to develop, and the demand for transport through Georgia rose sharply. This contributes to infrastructure development and strengthens geopolitical ties between transit countries. The development of transport corridors requires investment in infrastructure, customs cooperation, a convergence of regulatory systems and coordination of tariff regimes between countries in the region.
The influx of emigrants and tourists from Russia generated significant revenues for Georgia in 2022. Georgia's exports to Russia, income from Russian tourists and remittances from Russia totalled $900 million (5.7% of GDP) in 2020 and $1.3 billion (6.3% of GDP) in 2021. In 2022, this figure almost triples, and compared to the pre-pandemic year of 2019, it doubled to $3.6 billion (14.6% of GDP). So far, this figure peaked in 2018 (9.9% of GDP).
The Russians provided a massive inflow of capital to Georgia. The volume of Russian deposits in Georgia from the beginning of the war to the end of 2022 roughly quadrupled, from $732 million to $2.87 billion. Money transfers from Russia in 2022 reached $2.07 billion (in 2021, they were five times less, at $411 million). Russia's share in total remittances, 18-25% in 2019-2021, jumped to 47%. The inflow of funds from tourism has also increased. In 2022, revenues from Russian tourists amounted to $891 million - $115 million more than in the before COVID-19 year of 2019, when there were direct flights between Georgia and Russia.
The volume of Russian deposits in Georgia roughly quadrupled from the beginning of the war to the end of 2022, from $732 million to $2.87 billion. Remittances from Russia reached $2.07 billion in 2022 (in 2021, they were five times less, at $411 million). Russia's share in total remittances, 18-25% in 2019-2021, jumped to 47%. The inflow of funds from tourism has also increased. In 2022, receipts from Russian tourists amounted to $891 million - $115 million more than in 2019, the year before COVID-19, when there were direct flights between Georgia and Russia.
The growth of remittances from Russia, as an unsustainable trend, creates additional risks for the foreign exchange market. However, "for the moment," it provides a strong boost to trade, hotel services, real estate and employment growth. Up to half of emigrants from Russia are in the IT sector. Their salaries are several times higher than the average Georgian salary. Between January and August 2022, Russians bought 15,164 properties (including 13,262 apartments) and 13,850 plots of land in Georgia.
The acceleration of economic growth in Georgia (10.1% for the year) came as a surprise. Back in April, the World Bank had downgraded Georgia's GDP growth forecast from 5.5% to 2.5% because of the war.
The extraordinary inflow of funds into Georgia led to a sharp and sustained appreciation of the GEL against major currencies. From early 2022 to mid-March 2023, the GEL appreciated from 3.1 to 2.56/$1. The second consequence was a surge in inflation, particularly in food, rent and housing prices. In Tbilisi, rents have roughly doubled. Georgia had not seen a 12% increase in prices since 1999. The average wage in Georgia (1774 GEL, or about $650) in the fourth quarter was 21.2% higher than a year earlier, according to Geostat. However, in most sectors of the economy, wage growth was 12-15%, in line with inflation.
In the summer of 2022, Georgian students protested because rent had become unaffordable. Workers in private and state companies went on strike to demand higher wages. Perceived inflation is significantly higher than real inflation, while wages are rising very slowly, especially for jobs that do not require high qualifications. The median wage (the average worker's wage) was 31% lower than the average wage in 2021. The median wage (around $300) in education and health is 35-50% lower than the average.
The majority of Georgians are aware of accelerating inflation but do not see an increase in GDP. Already in September 2022, before the second wave of emigration from Russia, 71% of respondents said that their well-being would decrease in 2022. Due to high unemployment (18%) and low wages, 23% of Georgian citizens (861 thousand people) live and work abroad. In 2022, 80.4 thousand citizens will have left the country for six months or more. Of the remaining 12% are determined to emigrate entirely, and 52% - are to leave the country temporarily. With a significant proportion of Georgian citizens working abroad, remittances to the country reach 13% of GDP.
According to citizens, the situation with inflation and unemployment worsened in 2022, not improved. Therefore, by not imposing restrictions on mass emigration from Russia, the government is going against public opinion. 78% of respondents believe that Russians should be banned from entering Georgia without a visa, buying property and opening a business.
Dangerous Economic Dependence
Georgia's political dependence on Russia is matched by economic dependence. This is dangerous because, in every conflict since 2006, Russia has used its role as an energy supplier to put pressure on countries whose policies it does not like. Economic dependence and the constant military threat limit Georgia's political manoeuvring.
Only in the case of gas supplies has Georgia managed to escape the "Russian needle": here, Azerbaijan is the leading exporter. On the contrary, Georgia's imports of oil and oil products from Russia will almost triple to $622 million in 2022. Half of Georgia's oil and oil products come from Russia, and in some months of 2022 the share is almost two-thirds. Russian companies also dominate the domestic market for oil products. Lukoil Georgia owns the largest networks of petrol stations. When the war started, Rosneft sold the company that owns the network of petrol stations Golf. Lukoil Georgia is the largest supplier of petroleum products to the state.
Trade between Georgia and Russia reached its lowest point in 2011: Russia accounted for only 1.9 per cent of Georgia's exports and 3.7 per cent of its imports. In contrast, Russia became Georgia's second foreign trade partner after Turkey in 2012. Georgia's imports from Russia increased by 79% to $1.8 billion. Deliveries of petroleum products increased fivefold (to $482 million), food products (wheat, flour and cereals) almost one and a half times, steel eight times and coal and coke 2.6 times.
Georgia's exports to Russia in 2022 were almost three times lower than its imports ($651 million) and grew by only 7%, primarily due to a fivefold increase in re-exports of foreign cars. Unlike Turkey, Kazakhstan and others, Georgia has not become a significant export channel to Russia to circumvent sanctions. Supplies of ferroalloys and exports of alcohol and mineral water, which were banned to Russia on the eve of the war, are growing. Wine supplies reached their highest share since 2013 ($161 million, or 63.8 per cent).
Russian imports to Georgia have risen sharply
Beyond trade and finance, Georgia's dependence on Russia in the energy sector is a major concern. This stems from the fact that the Georgian government was comfortable doing business with companies controlled by the Russian state before and after Ivanishvili came to power. Business people with dual Georgian and Russian citizenship often play an intermediary role.
Unlike Abkhazia, the Georgian government-controlled part of Georgia imports a relatively small percentage (about a quarter) of its electricity from Russia. Nevertheless, Russia's role in the Georgian electricity market does not stop there. The Russian state-owned company InterRAO (owned by Rosneftegaz, InterRAO Capital and Rosseti) owns several hydropower plants in Georgia and supplies electricity to Tbilisi (accounting for 20% of Georgia's consumption). InterRAO's CEO is Boris Kovalchuk, a member of Putin's entourage.
No publicly available information exists on how Russian energy assets are managed in Georgia. The hydroelectric plants were sold to InterRAO in 2007 on the condition that three new hydroelectric plants would be built in Georgia by 2025 with the money raised by increasing energy tariffs. However, in 2013 (already under Ivanishvili) InterRAO and the Georgian government signed a secret memorandum releasing the company from the obligation to build HPPs in exchange for a reduction in energy tariffs, which became a pre-election promise of the Georgian Dream. A businessman who won the right to organize a lottery in Georgia in 2027-2036 and donated to Georgian Dream is a member of the board of directors of the energy companies owned by InterRAO.
Under a secret agreement signed in 2008 between the Georgian Ministry of Energy and InterRAO, the company manages the Enguri hydroelectric Dam (it provides 22.5% of Georgia's energy consumption), which is located on the territory of Georgia and Abkhazia and is jointly operated. Due to the inability to agree on electricity payments and account for its consumption in Abkhazia, the plant is loss-making, under-invested and under-utilised.
Russian capital also owns Georgia's electricity grids (domestic and those connecting Georgia to neighbouring countries). They are owned by the government and FGC UES. Several small Georgian power projects are owned by businessmen with Georgian and Russian citizenship. In fact, the entire Georgian energy system has "dual citizenship" - Russia's role in it is extremely large.
Economic dependence on Russia, a military threat from Russia and the desire of Boris Ivanishvili and the Georgian Dream to remain in power are pushing Georgia towards normalizing relations with Russia. This might rid Georgia of the military threat, but it would postpone EU and NATO accession indefinitely, deprive the country of the ability to pursue an independent policy and turn it into an autocracy. Fortunately, Georgian civil society is resisting this much more actively than Russian civil society did at the time. Only this, together with the support of the US and the EU, can prevent a negative scenario.
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