"Azerbaijan, Türkiye, Georgia's transit potential should play more important role on global stage"
Caliber.Az from Tbilisi

INTERVIEWS  20 July 2022 - 12:00

Caliber.Az presents an interview with Georgian economic development expert Georgi Tsakadze.

- How serious can the consequences of the Russian-Ukrainian war be for the world economy and, in particular, for the South Caucasus?

- The appreciation of the US dollar is one of the economic responses to the war. This is a clear sign of relatively high confidence in the US economy and doubts about the reliability of other major currencies. However, such a phenomenon may cause problems with the export of US products in the near future.

Meanwhile, the medium- and long-term global economic outlook is unclear, as it is closely related to the events on the battlefields in Ukraine. The war directly and significantly affected the stock prices of many companies directly or indirectly related to the economy of Russia, Ukraine and Belarus. This list also includes many companies that have been sanctioned by the West due to the fact that their shareholders/managers are closely associated with the Kremlin.

High inflation observed worldwide threatens global economic growth, causing uncertainty in financial markets due to a decrease in investor activity. The consequences of the war will be fully manifested in the coming months, or even years.

As for the economies of the South Caucasus countries, their currencies have significantly strengthened as a result of the inflow of funds from abroad, mainly from the Russian Federation. Some of the increased remittances are transformed into capital inflows. In particular, capital investments are made in the form of buying real estate and creating and investing in new enterprises. Both contribute to accelerating the growth of all three economies of the South Caucasus.

- Georgia has been striving to join the EU for a long time. What can membership in the organisation give to its economy?

- For Georgia, this means both great opportunities and considerable challenges. Access to the EU market means the discovery of almost 500 million potential high-income customers. Membership in the organisation is also the free movement of labour, that is, access for Georgians to significantly better jobs. This will bring large volumes of foreign direct investment into the economy, and significantly improve public infrastructure and services. In general, membership is a guaranteed way to become a developed society with a high income and enjoy justice and a sustainable world.

- The United States has accused a number of countries, including Georgia, of circumventing sanctions against Russia. Do you agree with Washington?

- This is a serious accusation. I have no information confirming or refuting this fact. Accordingly, I can't say anything definite.

- Georgia is a country with rapidly developing tourism. However, recently those who come there have expressed dissatisfaction due to a noticeable increase in prices, including in restaurants by 20-30 per cent. What is the reason for this and how, in your opinion, will it affect the tourist flow?

- Currently, consumer prices are rising rapidly all over the world. The internal reason for the price increase in Georgia is the rapid recovery of demand for tourism-related services, which, unfortunately, is not satisfied by an instant increase in supply (for example, in the restaurant sector).

The rapid strengthening of the Georgian lari is another obvious reason for the increase in prices for all goods and services denominated in US dollars. In the short term, this increase may lead to a reduction in exports, which will further worsen the country's balance of payments.

- How does the influx of citizens of the Russian Federation and Ukraine to Georgia after the outbreak of the war affect the economic indicators in the country?

- According to the National Statistical Office of Georgia (Geostat), the estimated real annual growth for the period from January to May 2022 will be slightly higher than 11 per cent. Economic growth in Georgia has accelerated due to a significant increase in the number of foreign visitors to the country. In particular, the guests influenced the economy in two ways: an increase in final consumption and an increase in private investment.

The growth of private investment should have two main drivers: an increase in the acquisition of housing and the creation /investment in new enterprises. Apparently, the increase in aggregate demand, which occurred as a result of the rapid influx of foreign citizens, also exerted some upward pressure on consumer prices.

- How did the Russian-Ukrainian war affect money transfers to Georgia?

- The official statistics of the National Bank of Georgia show a nine-fold annual increase in money transfers from Russia in May, and in June transfers increased five times. It is worth noting that this is not the only influx of foreign currency - many guests brought cash and other valuables with them.

As already mentioned, the war in Ukraine may become the main reason for the strengthening of the Georgian currency with all the above-described consequences.

- Georgia's cooperation with Azerbaijan and Turkey at the present time. How do you rate it?

- This cooperation is very active today. Although it still has a huge potential, especially in the conditions of Russia's prolonged occupation of Ukrainian lands. The transit potential of the three countries (linking China and Central Asia with Europe) should play a more important role on the world stage, which will immediately lead to an increase in revenues and an increase in the geostrategic importance of the three countries.

I am sure that the growing cooperation will allow our countries to successfully fight the Russian "soft power" and resolve any minor differences existing between the three states. It is also necessary to support socio-cultural, recreational, business and even military cooperation since there is high potential in all these areas.

Caliber.Az