Zurab Girchi Japaridze: “Investments are at a 20 or a 15 year low, nobody is making investments anymore.”
Verdict: FactCheck concludes that Zurab Girchi Japaridze’s statement is MOSTLY TRUE.
Resume:
In accordance with the National Statistics Office of Georgia, foreign direct investments (FDI) in 2020 were USD 619.9 million which is the lowest figure since 2005. In 2020, the FDI to GDP ratio was 3.9% which is also the lowest since 2001.
For the sake of fairness, we should underline that the global pandemic in 2020 was disastrous for investments not only in Georgia but across the world. According to the UN’s projections, FDI in the world dropped by nearly 42% and the outlook remains negative. At a first glance, the Government of Georgia can only partially be held responsible for 2020 whilst Zurab Japaridze’s statement was made within the context of criticism against the government. However, the investment dynamic in Georgia was already problematic in the pre-pandemic period. In addition, notwithstanding the post-war situation and the world economic crisis in 2009, FDI volumes were still higher as compared to 2020.
In the course of 2020, the current investment volume in the amount of USD 619.9 million was mostly directed to re-investment. The re-investment figure was also high in 2019 and it accounted for nearly 50% of the total investments. The large re-investment share in the FDI structure indicates a scarcity of new investments which is a negative occurrence for a country like Georgia and validates Zurab Japaridze’s emphasis.
Analysis
Zurab Girchi Japaridze, the leader of the Girchi – More Freedom political party, stated on air on TV Pirveli: “Investments are at a 20 or a 15 year low, nobody is making investments anymore.”
Foreign direct investment (FDI) implies a resident of one country owning a share in a foreign-based enterprise and carrying out different types of economic operations related to that enterprise. An investor is considered to be a direct one if he has at least a 10% ownership stake in a foreign-based enterprise’s shares or the equivalent of such participation.
In accordance with the National Statistics Office of Georgia, foreign direct investments (FDI) in 2020 were USD 619.9 million which is the lowest figure since 2005. The amount of FDI in the fourth quarter of 2020 was negative, meaning that investment outflows exceeded investment inflows. It is the first time since 1995 (based on existing statistics) that quarterly FDI numbers were negative in Georgia. Only one sector of the economy, the financial sector, accounted for 65% of the total FDI in 2020. Investments in the fields of energy, hotels and restaurants as well as processing industries have sharply contracted whilst investments rose in the financial sector and the mining, real estate and construction fields. Table 1 shows the detailed statistics of FDI in 2000-2020.
Together with the absolute numbers of the investments, the FDI to the GDP ratio is also important since a certain absolute number can be very high when it comes to a smaller economy and can be very small vis-à-vis larger economy. However, of note is that the FDI to the GDP ratio before 2010 and after 2010 can be used for orientation purposes only because the National Statistics Office of Georgia started to employ a new GDP calculation methodology after 2010 which resulted in the growth of GDP figures for that period. In 2020, the FDI to the GDP ratio was 3.9% which is the lowest figure since 2001.
Table 1: Foreign Direct Investments in 2000-2020
Source: National Statistics Office of Georgia
For the sake of fairness, we should underline that the global pandemic in 2020 was disastrous for investments not only in Georgia but across the world. According to the UN’s projections, FDI in the world dropped by nearly 42% and the outlook remains negative. In this regard, the Government of Georgia can only partially be held responsible. However, the investment dynamic in Georgia was already problematic in the pre-pandemic period. In addition, notwithstanding the post-war situation and the world economic crisis in 2009, FDI volumes were still higher as compared to 2020.
Foreign direct investments comprise three major components such as the investors’ equity capital, his made reinvestments and his debt obligations. In the course of 2020, equity capital flows nearly dropped to zero which was mostly caused by the pandemic-induced crisis. In the same period, the current investment volume of USD 619.9 million was mostly directed to re-investment. The re-investment figure was also high in 2019 and it accounted for nearly 50% of the total investments. The large re-investment share in the FDI structure indicates a scarcity of new investments which is a negative occurrence for a country like Georgia and validates Zurab Japaridze’s emphasis.
