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Natia Turnava: “FDI is rising and the previous negative dynamic has been changed.”

Verdict: FactCheck concludes that Natia Turnava’s statement is a LIE.

Resume:

The total volume of foreign direct investments (FDI) in Georgia for the first three quarters of 2021 was USD 728.4 million which is only 3.2% more as compared to the same period of 2020 amid the pandemic and the growth is attributable to the base effect only. In absolute figures, investment rose by a mere USD 22 million. As compared to the first three quarter of 2019, FDI in 2021 decreased by 25% in 2021 which is a catastrophic indicator whilst the negative dynamic vis-à-vis the previous years was already well-evident in 2019.

According to the data of the first three quarters of 2021, only USD 84 million was invested in Georgia as equity capital, meaning that there is nearly a 70% drop as compared to the same period of 2020 which is yet another catastrophic figure given the fact that the volume of equity capital invested in 2020 was at its nadir for the last 26 years in the history of independent Georgia. The growth of FDI figures is largely linked with the doubling of reinvestment. Finally, leaving aside the fact that there is a critical situation in terms of the general investment dynamic, the volume of new investments made in 2021 is nearly three times lower as compared to the previous year. Therefore, Natia Turnava’s statement is a LIE.

Analysis:

The Minister of Economy and Sustainable Development of Georgia, Natia Turnava, made the following statement in regard to foreign direct investments: “The volume of foreign direct investments is rising and the previous negative dynamic has been changed.”

FactCheck decided to verify accuracy of the statement.

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. Foreign direct investments consist of three major components: equity capital of investors, reinvestments and debt obligations.

According to preliminary data, the volume of foreign direct investments in Georgia in the third quarter of 2021 was USD 299.0 million which is 1.4% higher as compared to the final figures of the third quarter of 2020. As reported by the National Statistics Office of Georgia, growth is largely stipulated by the increased reinvestment figures. In accordance with the data of the National Statistics Office of Georgia, the total volume of foreign direct investments (FDI) in Georgia for the first three quarters of 2021 was USD 728.4 million which is only 3.2% more as compared to the same period in 2020 which coincided with the pandemic.

For the sake of fairness, it needs to be emphasised that 2020 was devastating for the investments not only in Georgia but for the entire world. In this regard, the Government of Georgia can only partially be held responsible. The Minister of Economy and Sustainable Development compares 2021’s figure to that of 2020 with a lower base line which is obviously manipulative. Moreover, the investment dynamic has been problematic for Georgia even before the pre-pandemic period. In 2018-2019, the volume of foreign direct investments dropped significantly as compared to the previous years. In 2017, the total volume of foreign directs investments was USD 1.98 billion whilst it decreased to USD 1.3 billion in 2019 which is a USD 645 million (32.5%) drop as compared to 2017. In this context, another catastrophic fact is that foreign direct investments in the first three quarters of 2021 are 24.5% less as compared to the same period of 2019.

Table 1: Foreign Direct Investments in 2013-2021, MM USD

Source: FactCheck

Generally, FDI statistics in the last several years have not been spectacular. Furthermore, foreign remittances are higher in 2018-2020 as compared to FDI, meaning that emigrants were bringing more money into the country than were foreign investors. Of note is that in the first three quarters of 2021, foreign remittances reached USD 1.7 billion which is nearly 2.3 times higher as compared to foreign direct investments.

It is also important to take a look at the structure of foreign direct investments. Foreign direct investments consist of three components: equity capital of investors, reinvestments and debt obligations.

Table 2: Foreign Direct Investment Structure in 2017-2021 in the First Three Quarters, MM USD

Source: National Statistics Office of Georgia

According to the first three quarters of 2021, a total of USD 728.4 million was invested in Georgia. However, considering the components of the foreign direct investments, USD 613 million was invested in the form of reinvestment. A mere USD 84 million was invested in the form of equity capital whilst debt obligations accounted for USD 32 million. The growth of FDI figures is largely linked with the doubling of the reinvestment volume. The higher share of reinvestment in the FDI structure indicates a lower figure of new investments which is a negative occurrence for a country like Georgia.