Georgia on the way to new turbulence


Zurab Tsertsvadze / AP

The West is not satisfied with the position taken by official Tbilisi on the issue of a special military operation and relations with Russia.

I would like to be wrong, but it is difficult to get rid of the feeling that the events of early March in Georgia, when the opposition parties led their supporters to storm the parliament, are just a signal of what awaits the republic this year and most probably next year. It's a kind of a warm-up.

There are several reasons for such a prognosis. And the main one is the dissatisfaction of the West with the way official Tbilisi, which claims to be an EU candidate, has behaved toward Russia in connection with the special military operation. Georgia has not only not joined the sanctions, but is about to discuss the purchase of trains from Russia for the Tbilisi subway and even, according to unconfirmed reports, is allegedly considering resuming air traffic.

Moreover, as U.S. observers have noted, official Tbilisi's rhetoric on the conflict in Ukraine is becoming increasingly similar to the position of Hungarian leader Viktor Orban. Stephen Jones, director of the Georgia Studies Program at Harvard University, points to this aspect in particular. As for the possibility of creating tensions on the borders with Russia, Abkhazia and South Ossetia and thus forcing Moscow to increase its defense capabilities in the North Caucasus at the expense of the military contingent in Ukraine, it is out of the question at all. At least not yet.

So there are plenty of reasons for Western ex-partners to clamp down on or even replace the ruling Georgian Dream party and its government. The end of the current year, when the EU should make a decision on granting the republic the status of a candidate for membership to the EU, as well as the parliamentary elections of 2024 may be crucial in this regard. In this connection, we recall that Georgia is a parliamentary republic, and the party that wins the elections forms the cabinet of ministers.

The Georgian Dream's alleged intention to increase the government's influence on the Central Bank of the republic, which, incidentally, has already drawn criticism from the EU, can also be added to the possible reasons for new protests.

And now let's try to understand, at least briefly, the situation that has developed in Georgia today.

Let's start with economics.

This former Soviet republic cannot be considered a prosperous country. Its foreign trade balance is traditionally in deficit. In 2022, according to Fitch, the foreign trade deficit was 8.8 billion GEL or $3.4 billion.

The tourism business and everything related to it, which has long been one of the main and profitable areas of the economy, seriously sagged after the so-called "parliamentary scandal" of 2019, which led to a sharp decline in visitors from Russia. And then came the pandemic, further collapsing the industry.

However, last year a miraculous miracle happened when about 112 thousand citizens of Russia came to the republic. Some of them left for Georgia for "ideological reasons" (sort of pacifists who do not accept the special military operation), another group fled from mobilization. The third group includes business representatives tied to operations with the U.S. and EU countries, who were forced to move and re-register their companies due to the sanctions imposed against Russia.

As a result of this migration, the inflow of money from Russia has sharply increased and reached 2.3 billion dollars. And this, by the way, is equal to 5.0% of Georgia's annual real GDP.

All in all, according to the same Fitch estimates, the growth rate of the Georgian economy (i.e. GDP) in 2022 reached as much as 10.1%. And this is against the background of the fall of this indicator in all EU countries and the United States. One is tempted to say that Georgia has embarked on the path of prosperity and well-being.

Not exactly. To be more precise, the prosperity did not extend to all the inhabitants of this hospitable republic.

The relocation of more than hundreds of thousands of solvent Russians to a country with a formal population of 3.7 million (i.e., not counting those who have gone to work abroad) immediately caused the prices of housing, food, and consumer goods to skyrocket.

If we follow the May 2022 figures, the increase in food prices compared to May 2021 was 22.0%. A record for the last 12 years. It should be taken into account that this category of goods is one third of the consumer basket of the population.

Without going into detail, we note that inflation in Georgia was 11.9% at the end of the year. For reference: the plans of the Republican Central Bank (National Bank of Georgia) included inflation at the level of 3.0%. So there is nothing to rejoice about for Georgians, especially residents of Tbilisi and Batumi, where the bulk of migrants from Russia have settled down.

Apparently, this is why, judging by leaks in the local media, the Georgian authorities intend to close the border to Russians in case of a new wave of migrants.

However, now there is an opposite trend: after the events in early March, some Russian migrants moved back, while others preferred to move to other countries of near and far abroad. However, we are still talking about thousands of migrants, but if the situation in Georgia continues to destabilize, the outflow of migrants could take a mass character. This will cause the collapse of the price bubble at the real estate market, reduced demand at the market of goods and services as well as jobs in the cities and so on. Prices for food and consumer goods, even if they will be reduced, not by much.

As for the political situation, it is worth recalling that the Georgian Dream, which was founded and came to power in 2012 and is supported by its creator, the richest man in the country, billionaire dollar Bidzina Ivanishvili, is opposed by about two or just over a dozen political parties that are in opposition. Most of them are very small groups clustered around a single leader. It is very difficult to find differences in their programs and slogans. The only thing that unites them somehow is the criticism of the ruling party.

The exceptions, perhaps, are the two parties - the United National Movement (UNM) and the European Georgia, formed as a result of the 2017 split of the UNM, which was again the result of competition among the top party leadership.

And here, I think, it would be worth paying attention to such a delicate issue as the financing of political structures in Georgia. If Ivanishvili's money is behind the Georgian Dream, the question is who provides funding for most, if not all, of the opposition parties? After all, Georgia is not a rich country, and it simply cannot afford to support such a plethora of parties and their leaders.

The answer is simple: at the expense of various Western funds. This refers to the rage the opposition felt at the draft law on foreign agents at the beginning of March.

It is extremely difficult for the average voter to make sense of this political patchwork, which makes them distrust both politicians and their parties. By the way, according to a February poll conducted by the American National Democratic Institute, 61 percent of Georgia's voters believe that no political party reflects their interests.

And when there is no rational interest, emotions come into play, which makes the population receptive to any slogan, no matter how silly. As long as they are pronounced loudly and with a convincing intonation. This is what the events at the beginning of March, as well as the numerous street protests and riots that break out in the republic over and over again, have shown. And, unfortunately, this practice will continue.

The rating agency Fitch downgraded Georgia's Short-Term Political Risk Index from 52.7 to 51.5 points. Admittedly, it's not much so far. Let's see what happens next...