TOPIC OF THE WEEK: FDI in Georgia underwhelms in 2024
Last week the Georgian statistical office reported the much awaited full-year (2024) data on FDI. Similar to the tourist numbers I discussed earlier, foreign direct investment has been the subject of intense discussions and speculation over the course of last year as the government and the opposition have offered conflicting views on how the political processes in the country would affect these two critical financing items in the BoP.
In contrast to tourism, FDI flows indeed suffered last year, dropping by a sizable 30% relative to 2023. FDI totaled US$1.3bn vs US$1.9bn reached in 2023. While in nominal terms this is about double what was received during COVID (2020) and is about equal to the numbers for 2018, 2019 and 2021, it is the third-lowest figure as a share of GDP (4.1%) in this century. It was only in 2001 and 2020 that FDI posted lower levels relative to GDP. Moreover, the decline (again as a share of GDP) was significant vs 2022 (9.0%) and 2023 (6.1%).
FDI continues to be driven mostly by western investment and, hence, the decrease in FDI may not be surprising given that these countries are the most sensitive to the political backdrop in Georgia. If we look only at individual countries, the share of the three largest investors in the total volume of foreign direct investment in 2024 amounted to 58.2 percent. The shares of major foreign direct investor countries in FDI stand as follows: The United Kingdom (33.6 percent), Malta (13.2 percent) and Netherlands (11.4 percent).
The largest share of FDI was registered in the financial and insurance activities sector, totaling US$715.6mn (53.7 percent), manufacturing was second, with US$162.7 million (12.2 percent), followed by transport and communications with US$152.1mn (11.4 percent). There has been a shift in the sectoral distribution of FDI over the years, with transportation, communication and construction leading in the previous decade up to 2018. This was driven by authorities’ efforts to advance Georgia’s geographical potential via the development of a transit hub in the region. In subsequent years, FDI has re-oriented itself predominantly into the financial, real estate and energy sector.
Finally, the active debate about the prospective UAE US$6bn investment continues. I already argued that the investment, if implemented according to initial announcements (approximately US$1bn will be invested each year), would be enough to offset any projected decline in Western FDI as FDI coming from the EU/UK/US has averaged US$942mn per annum over the last decade. In addition, it was my view that there are still a lot of uncertainties about the investment and, hence, that the UAE investment should be treated with some caution. In the meantime, on March 13, PM Kobakhidze said these UAE-financed FDI-related projects would start as soon as next year. I still think that until money comes in, it would be safe to assume that it will not arrive given the limited bits and pieces of information that have been provided so far.
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