Resume: Georgia reached its highest nominal foreign direct investment in 2022, exceeding USD 2.2 billion. However, investments declined by 15% in 2023. Data for 2024 are available only for the first three quarters, indicating an additional 40% drop – from USD 1.6 billion to USD 966 million – as compared to the same period in 2022.
The investment-to-GDP ratio has declined even further than the absolute volume of FDI. Notably, FDI accounted for 6.8% of the GDP in 2023, marking one of the lowest levels recorded under the Georgian Dream’s governance. This ratio is likely to drop even further in 2024 unless there was a substantial surge in the fourth quarter.
The rate of reinvestment in FDI has risen significantly since the pandemic whilst the inflow of new investments has decreased.
Considering the overall drop in FDI in 2023-2024, as well as the decreasing investment-to-GDP ratio, FactCheck concludes that Mikheil Kavelashvili’s statement is FALSE.
Analysis
Whilst commenting on investments in parliament, Mikheil Kavelashvili stated: “Georgia is becoming increasingly attractive to investors every year. We would not have been able to do this if it were not for ensuring peace.”
Foreign direct investment (FDI) in Georgia does not follow a consistent long-term trend, either upward or downward and, instead, is often tied to individual projects or changes in ownership. Notable examples include the Baku-Tbilisi-Ceyhan oil pipeline, the Shah Deniz gas pipeline and the acquisition of GWP by a Spanish company.
A rise in FDI was only recorded once, in 2022, when taking the post-pandemic period for analysis of recent trends. Investments decreased by 15% in 2023 and the decline continued into the first three quarters of 2024 with a 40% drop as compared to the same period the previous year and a 50% drop as compared to January-September 2022.
Furthermore, investments are measured not only in absolute terms but also as a ratio to the GDP. This ratio has halved in recent years, highlighting both economic growth and a reduction in investment.
Whilst the volume of FDI reached a peak nominal value of over USD 2.2 billion in 2022, investments in 2007, 2014 and 2017 were higher in real terms when adjusting for changes in the purchasing power of USD.
Moreover, the consecutive four-year period in 2014-2017 was more favourable than 2022 in terms of the investment-to-GDP ratio. This ratio then decreased further by 2.4 percentage points in 2023.
Graph 1: Foreign Direct Investment
Source: National Bank of Georgia, World Bank
Investments began to decline in the second half of 2023. The investment rate lagged behind the same period in the previous year in four out of the five quarters. Both the first quarter and the aggregated data for two and three quarters of 2024 marked a decline as compared to the same periods in 2022 and 2023. The only exception was the second quarter of 2024, which did not significantly affect the overall trend, even on a semi-annual basis.
In addition to a drop in the absolute value of investments, the rate of new investments has also declined. Consequently, the final level of FDI is primarily driven by reinvestment.
Graph 2: Reinvestment Rate in Foreign Direct Investment
Source: National Statistics Office of Georgia
The reinvestment rate increased sharply for the first time in 2017 following the introduction of the so-called Estonian model which exempted reinvested profits from tax. Whilst the reinvestment rate averaged 18% from 2013 to 2016, it doubled to 37% in 2017-2019 and then surged to 74% following the pandemic, in 2021-2024. The level of reinvestment during January-September in the previous year even surpassed the 2020 data. Whilst reinvestment is generally seen as a positive phenomenon, the lack of new investments points to underlying issues rather than an indication of increased attractiveness, as suggested by Mikheil Kavelashvili.
There has been a decline in investments from the United States, the United Kingdom and the European Union in recent years when breaking down investments by country and region. Notably, European integration is outlined in the Constitution of Georgia (Article 78) whilst the United States was a strategic partner until December 2024.
A total of USD 554 million in investment flowed into Georgia from the United States, the United Kingdom and the European Union in the first three quarters of 2021. In contrast, Georgia received USD 1.4 billion from the aforementioned countries in the same period in 2022, USD 970 million in January-September 2023 and USD 513 million in January-September 2024. The figure for 2024 is lower than that of the same period in 2021 when pandemic-related regulations were still in effect.
Investments have been decreasing in monetary value for the last two years whilst its ratio to the GDP has experienced an even greater decline. The share of new investment is minimal even within the reduced investment levels, with the main burden falling on reinvestment. The scale of the aforementioned decline is significant, particularly from the US, the UK and the European Union. Whilst a nominal monetary peak was recorded in 2022, this year did not mark a record when accounting for the change in the purchasing power of USD. Considering all the factors above, FactCheck concludes that Mikheil Kavelashvili’s statement that interest in Georgia has increased in recent years is FALSE.
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